Critical Analysis: Cato (NYSE:CATO) & Zumiez (NASDAQ:ZUMZ)

Cato (NYSE:CATO) and Zumiez (NASDAQ:ZUMZ) are both small-cap retail/wholesale companies, but which is the superior stock? We will contrast the two businesses based on the strength of their institutional ownership, profitability, dividends, valuation, earnings, risk and analyst recommendations.

Valuation and Earnings

This table compares Cato and Zumiez”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cato	$649.81 million	0.11	-$18.06 million	($1.01)	-3.65
Zumiez	$889.20 million	0.32	-$1.71 million	$0.01	1,600.00

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

Analyst Recommendations

This is a breakdown of current recommendations for Cato and Zumiez, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cato	0	0	0	0	0.00
Zumiez	0	1	0	0	2.00

Zumiez has a consensus price target of $25.00, suggesting a potential upside of 56.25%. Given Zumiez’s stronger consensus rating and higher probable upside, analysts plainly believe Zumiez is more favorable than Cato.

Insider and Institutional Ownership

61.1% of Cato shares are owned by institutional investors. Comparatively, 95.5% of Zumiez shares are owned by institutional investors. 16.6% of Cato shares are owned by insiders. Comparatively, 20.3% of Zumiez shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Profitability

This table compares Cato and Zumiez’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Cato	-2.93%	-11.29%	-4.32%
Zumiez	0.08%	0.23%	0.12%

Risk & Volatility

Cato has a beta of 0.85, suggesting that its share price is 15% less volatile than the S&P 500. Comparatively, Zumiez has a beta of 0.97, suggesting that its share price is 3% less volatile than the S&P 500.

Summary

Zumiez beats Cato on 13 of the 13 factors compared between the two stocks.

About Cato

The Cato Corporation, together with its subsidiaries, operates as a specialty retailer of fashion apparel and accessories primarily in the southeastern United States. It operates through two segments, Retail and Credit. The company's stores and e-commerce websites offer a range of apparel and accessories, including dressy, career, and casual sportswear; and dresses, coats, shoes, lingerie, costume jewelry, and handbags, as well as men's wear, and lines for kids and infants. It operates its stores and e-commerce websites under the Cato, Cato Fashions, Cato Plus, It's Fashion, It's Fashion Metro, and Versona names. It also provides credit card services to its customers, as well as layaway plans for customers. The Cato Corporation was incorporated in 1946 and is headquartered in Charlotte, North Carolina.

About Zumiez

Zumiez Inc. operates as a specialty retailer of apparel, footwear, accessories, and hardgoods for young men and women. The company provides hardgoods, including skateboards, snowboards, bindings, components, and other equipment. It operates stores in the United States, Canada, Europe, and Australia under the names of Zumiez, Blue Tomato, and Fast Times. It operates zumiez.com, zumiez.ca, blue-tomato.com, and fasttimes.com.au e-commerce websites. Zumiez Inc. was founded in 1978 and is headquartered in Lynnwood, Washington.