Target Corporation (NYSE:TGT) and Big Lots, Inc. (NYSE:BIG) are both Services companies that recently hit new highs. The recent price action of these companies has left many investors wondering what actions to take. To determine if one is a better investment than the other, we will compare the two names across various metrics, including growth, profitability, risk, return, dividends, and valuation.
Target Corporation (NYSE:TGT) operates in the Discount, Variety Stores segment of the Services sector. The company has grown sales at a -0.10% annual rate over the past five years, putting it in the low growth category. TGT has a net profit margin of 3.80% and is more profitable than the average company in the Discount, Variety Stores industry. In terms of efficiency, TGT has an asset turnover ratio of 1.83. This figure represents the amount of revenue a company generates per dollar of assets. TGT’s financial leverage ratio is 2.66, which indicates that the company’s asset base is primarily funded by debt. Company’s return on equity, which is really just the product of the company’s profit margin, asset turnover, and financial leverage ratios, is 24.00%, which is better than the Discount, Variety Stores industry average ROE.
Target Corporation (TGT) pays out an annual dividend of 2.48 per share. At the current valuation, this equates to a dividend yield of 3.45%. The company has a payout ratio of 50.40%. TGT’s current dividend therefore should be sustainable. Stock’s free cash flow yield, which represents the amount of cash available to investors before dividends, expressed as a percentage of the stock price, is 0.97. All else equal, companies with higher FCF yields are viewed as cheaper. Company trades at a P/E ratio of 15.09, and is less expensive than the average stock in the Discount, Variety Stores industry. The average investment recommendation for TGT, taken from a group of Wall Street Analysts, is 2.90, or a hold.
Over the past three months, Target Corporation insiders have been net buyers, dumping a net of -20,086 shares. This implies that insiders have been feeling relatively bearish about the outlook for TGT. Insider activity and sentiment signals are important to monitor because they can shed light on how “risky” a stock is perceived to be at it’s current valuation. Knowing this, it makes sense to look at beta, a measure of market risk. TGT has a beta of 0.72 and therefore an below average level of market volatility.
Big Lots, Inc. (NYSE:BIG) operates in the Discount, Variety Stores segment of the Services sector. BIG has increased sales at a 0.20% CAGR over the past five years, and is considered a low growth stock. The company has a net profit margin of 3.40% and is more profitable than the average Discount, Variety Stores player. BIG’s asset turnover ratio is 3.14 and the company has financial leverage of 2.26. BIG’s return on equity of 28.50% is better than the Discount, Variety Stores industry average.
Big Lots, Inc. (BIG) pays a dividend of 1.00, which translates to dividend yield of 1.78% based on the current price. Stock has a payout ratio of 23.10%. According to this ratio, BIG should be able to continue making payouts at these levels. The company trades at a free cash flow yield of -5.15 and has a P/E of 14.37. Compared to the average company in the 32.06 space, BIG is relatively cheap. The average analyst recommendation for BIG is 2.30, or a buy. The average analyst recommendation for BIG is 2.30, or a buy.
Big Lots, Inc. insiders have sold a net of -26,000 shares during the past three months, which implies that the company’s top executives have been feeling bearish about the stock’s outlook. Finally, BIG’s beta of 0.93 indicates that the stock has an below average level of market risk.
Target Corporation (NYSE:BIG) scores higher than Big Lots, Inc. (NYSE:TGT) on 7 of the 13 measures compared between the two companies. BIG has the better fundamentals, scoring higher on growth, efficiency, leverage and return metrics.