Earnings

A Side-by-side Analysis of Express, Inc. (EXPR) and Ross Stores, Inc. (ROST)

Express, Inc. (NYSE:EXPR) shares are down more than -3.72% this year and recently decreased -5.47% or -$0.6 to settle at $10.36. Ross Stores, Inc. (NASDAQ:ROST), on the other hand, is up 15.11% year to date as of 12/14/2017. It currently trades at $75.51 and has returned -1.55% during the past week.

Express, Inc. (NYSE:EXPR) and Ross Stores, Inc. (NASDAQ:ROST) are the two most active stocks in the Apparel Stores industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect EXPR to grow earnings at a 12.00% annual rate over the next 5 years. Comparatively, ROST is expected to grow at a 10.00% annual rate. All else equal, EXPR’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 16.49% for Ross Stores, Inc. (ROST). EXPR’s ROI is 11.10% while ROST has a ROI of 36.10%. The interpretation is that ROST’s business generates a higher return on investment than EXPR’s.

Cash Flow 




Cash is king when it comes to investing. EXPR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.32. Comparatively, ROST’s free cash flow per share was +0.55. On a percent-of-sales basis, EXPR’s free cash flow was 1.15% while ROST converted 1.63% of its revenues into cash flow. This means that, for a given level of sales, ROST is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. EXPR has a current ratio of 1.70 compared to 1.60 for ROST. This means that EXPR can more easily cover its most immediate liabilities over the next twelve months. EXPR’s debt-to-equity ratio is 0.00 versus a D/E of 0.14 for ROST. ROST is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

EXPR trades at a forward P/E of 18.18, a P/B of 1.28, and a P/S of 0.38, compared to a forward P/E of 21.08, a P/B of 10.03, and a P/S of 2.15 for ROST. EXPR is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. EXPR is currently priced at a -3.99% to its one-year price target of 10.79. Comparatively, ROST is 0.11% relative to its price target of 75.43. This suggests that EXPR is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.90 for EXPR and 2.10 for ROST, which implies that analysts are more bullish on the outlook for EXPR.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. EXPR has a beta of 1.48 and ROST’s beta is 1.15. ROST’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. EXPR has a short ratio of 3.54 compared to a short interest of 3.86 for ROST. This implies that the market is currently less bearish on the outlook for EXPR.

Summary

Express, Inc. (NYSE:EXPR) beats Ross Stores, Inc. (NASDAQ:ROST) on a total of 8 of the 14 factors compared between the two stocks. EXPR is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, EXPR is the cheaper of the two stocks on an earnings, book value and sales basis, EXPR is more undervalued relative to its price target. Finally, EXPR has better sentiment signals based on short interest.

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