Financial Review: Kate Spade & Co (KATE) and GAP (GPS)

Kate Spade & Co (NYSE: KATE) and GAP (NYSE:GPS) are both mid-cap cyclical consumer goods & services companies, but which is the better stock? We will compare the two businesses based on the strength of their profitability, risk, earnings, dividends, analyst recommendations, institutional ownership and valuation.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Kate Spade & Co and GAP, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Kate Spade & Co 1 13 1 0 2.00
GAP 3 19 6 0 2.11

Kate Spade & Co presently has a consensus price target of $20.04, suggesting a potential upside of 8.39%. GAP has a consensus price target of $28.13, suggesting a potential downside of 15.99%. Given Kate Spade & Co’s higher possible upside, research analysts plainly believe Kate Spade & Co is more favorable than GAP.

Profitability

This table compares Kate Spade & Co and GAP’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Kate Spade & Co 0.44% 1.11% 0.43%
GAP 5.57% 27.47% 10.56%

Insider and Institutional Ownership

97.9% of Kate Spade & Co shares are owned by institutional investors. Comparatively, 54.8% of GAP shares are owned by institutional investors. 0.8% of Kate Spade & Co shares are owned by insiders. Comparatively, 27.3% of GAP shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Dividends

GAP pays an annual dividend of $0.92 per share and has a dividend yield of 2.7%. Kate Spade & Co does not pay a dividend. GAP pays out 42.4% of its earnings in the form of a dividend. GAP has increased its dividend for 7 consecutive years.

Risk & Volatility

Kate Spade & Co has a beta of 1.75, indicating that its stock price is 75% more volatile than the S&P 500. Comparatively, GAP has a beta of 0.95, indicating that its stock price is 5% less volatile than the S&P 500.

Earnings & Valuation

This table compares Kate Spade & Co and GAP’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Kate Spade & Co N/A N/A N/A $1.10 16.81
GAP $15.52 billion 0.84 $676.00 million $2.17 15.43

GAP has higher revenue and earnings than Kate Spade & Co. GAP is trading at a lower price-to-earnings ratio than Kate Spade & Co, indicating that it is currently the more affordable of the two stocks.

Summary

GAP beats Kate Spade & Co on 10 of the 14 factors compared between the two stocks.

About Kate Spade & Co

Kate Spade & Company is engaged in the design and marketing of a range of accessories and apparel. It operates through three segments. The KATE SPADE North America segment consists of the Company’s kate spade new york and JACK SPADE brands in North America. The KATE SPADE International segment consists of the Company’s kate spade new york and JACK SPADE brands in international markets, which operates principally in Japan, Asia (excluding Japan), Europe and Latin America). The Adelington Design Group segment primarily consists of exclusive arrangements to supply jewelry for the LIZ CLAIBORNE and MONET brands. In addition, the Adelington Design Group segment serves J.C. Penney Corporation, Inc. (JCPenney) through exclusive supplier agreements for the LIZ CLAIBORNE and MONET jewelry lines. As of December 31, 2016, it operated 98 the United States Specialty Retail Stores; 35 Foreign Specialty Retail Stores; 65 the United States Outlet Stores; 17 Foreign Outlet Stores, and 54 Concessions.

About GAP

The Gap, Inc. (Gap Inc.) is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Its products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. In addition to operating in the specialty, outlet, online and franchise channels, it also uses the Company’s omni-channel capabilities to bridge the digital world and physical stores. Its omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store are tailored across its portfolio of brands. It also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico.

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