Fast Retailing (OTCMKTS:FRCOY) versus GAP (NYSE:GPS) Critical Review

GAP (NYSE:GPS) and Fast Retailing (OTCMKTS:FRCOY) are both consumer cyclical companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, valuation, earnings, profitability, analyst recommendations, risk and institutional ownership.

Insider & Institutional Ownership

58.8% of GAP shares are owned by institutional investors. Comparatively, 0.0% of Fast Retailing shares are owned by institutional investors. 30.8% of GAP shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Dividends

GAP pays an annual dividend of $0.60 per share. Fast Retailing pays an annual dividend of $0.15 per share and has a dividend yield of 0.5%. GAP pays out 33.3% of its earnings in the form of a dividend. Fast Retailing pays out 0.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Fast Retailing is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a summary of recent ratings and price targets for GAP and Fast Retailing, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
GAP	0	7	8	0	2.53
Fast Retailing	0	0	0	0	N/A

GAP currently has a consensus price target of $27.08, indicating a potential upside of ∞. Given GAP’s higher possible upside, equities research analysts clearly believe GAP is more favorable than Fast Retailing.

Profitability

This table compares GAP and Fast Retailing’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
GAP	4.52%	27.57%	6.30%
Fast Retailing	N/A	N/A	N/A

Valuation & Earnings

This table compares GAP and Fast Retailing”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
GAP	$15.00 billion	0.00	$502.00 million	$1.80	N/A
Fast Retailing	N/A	N/A	N/A	$99.47	0.32

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

Summary

GAP beats Fast Retailing on 9 of the 12 factors compared between the two stocks.

About GAP

The Gap, Inc. operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include adult apparel and accessories; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls. The company offers its products through company-operated stores, franchise stores, websites, and third-party arrangements. It has franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta stores and websites in Asia, Europe, Latin America, the Middle East, and Africa. The Gap, Inc. was incorporated in 1969 and is headquartered in San Francisco, California.

About Fast Retailing

Fast Retailing Co., Ltd., through its subsidiaries, operates as an apparel designer and retailer in Japan and internationally. The company operates through UNIQLO Japan, UNIQLO International, GU, and Global Brands segments. It manufactures and retails clothing for men, women, children, and babies, as well as offers shoes and other goods and items. The company operates stores and franchises under the UNIQLO, GU, PLST, Theory, COMPTOIR DES COTONNIERS, J Brand, and PRINCESSE TAM.TAM brand names. It also sells its products through online; and provides real estate leasing services. The company was formerly known as Ogori Shoji Co., Ltd. and changed its name to Fast Retailing Co., Ltd. in September 1991. Fast Retailing Co., Ltd. was founded in 1949 and is headquartered in Yamaguchi, Japan.