Dollar Tree, Inc. (NASDAQ:DLTR) shares are up more than 40.02% this year and recently increased 0.54% or $0.58 to settle at $108.07. Burlington Stores, Inc. (NYSE:BURL), on the other hand, is up 43.54% year to date as of 12/27/2017. It currently trades at $121.65 and has returned 3.55% during the past week.

Dollar Tree, Inc. (NASDAQ:DLTR) and Burlington Stores, Inc. (NYSE:BURL) are the two most active stocks in the Discount, Variety Stores industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

**Growth**

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect DLTR to grow earnings at a 13.48% annual rate over the next 5 years. Comparatively, BURL is expected to grow at a 18.91% annual rate. All else equal, BURL’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 11.1% for Burlington Stores, Inc. (BURL). DLTR’s ROI is 10.70% while BURL has a ROI of 24.20%. The interpretation is that BURL’s business generates a higher return on investment than DLTR’s.

**Cash Flow **

Cash is king when it comes to investing. DLTR’s free cash flow (“FCF”) per share for the trailing twelve months was -1.10. Comparatively, BURL’s free cash flow per share was +0.93. On a percent-of-sales basis, DLTR’s free cash flow was -1.26% while BURL converted 1.14% of its revenues into cash flow. This means that, for a given level of sales, BURL is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. DLTR has a current ratio of 1.90 compared to 1.00 for BURL. This means that DLTR can more easily cover its most immediate liabilities over the next twelve months.

**Valuation**

DLTR trades at a forward P/E of 20.25, a P/B of 4.19, and a P/S of 1.18, compared to a forward P/E of 24.71, and a P/S of 1.40 for BURL. 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**

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. DLTR is currently priced at a -0.23% to its one-year price target of 108.32. Comparatively, BURL is 4.08% relative to its price target of 116.88. This suggests that DLTR 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 2.10 for DLTR and 1.90 for BURL, which implies that analysts are more bullish on the outlook for DLTR.

**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. DLTR has a beta of 0.62 and BURL’s beta is 0.56. BURL’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. DLTR has a short ratio of 2.17 compared to a short interest of 4.92 for BURL. This implies that the market is currently less bearish on the outlook for DLTR.

**Summary**

Burlington Stores, Inc. (NYSE:BURL) beats Dollar Tree, Inc. (NASDAQ:DLTR) on a total of 8 of the 14 factors compared between the two stocks. BURL is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, WMT has better sentiment signals based on short interest.