Macy’s, Inc. (NYSE:M) shares are up more than 14.09% this year and recently increased 1.70% or $0.48 to settle at $28.74. Under Armour, Inc. (NYSE:UAA), on the other hand, is up 14.00% year to date as of 04/16/2018. It currently trades at $16.45 and has returned -1.14% during the past week.

Macy’s, Inc. (NYSE:M) and Under Armour, Inc. (NYSE:UAA) are the two most active stocks in the Department Stores industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

**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 M to grow earnings at a 18.64% annual rate over the next 5 years. Comparatively, UAA is expected to grow at a 28.80% annual rate. All else equal, UAA’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. Macy’s, Inc. (M) has an EBITDA margin of 11.35%. This suggests that M underlying business is more profitable M’s ROI is 11.00% while UAA has a ROI of 1.00%. The interpretation is that M’s business generates a higher return on investment than UAA’s.

**Cash Flow**

The amount of free cash flow available to investors is ultimately what determines the value of a stock. M’s free cash flow (“FCF”) per share for the trailing twelve months was +4.27. Comparatively, UAA’s free cash flow per share was +0.47. On a percent-of-sales basis, M’s free cash flow was 5.24% while UAA converted 4.17% of its revenues into cash flow. This means that, for a given level of sales, M is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. M has a current ratio of 1.50 compared to 2.20 for UAA. This means that UAA can more easily cover its most immediate liabilities over the next twelve months. M’s debt-to-equity ratio is 1.04 versus a D/E of 0.45 for UAA. M is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

M trades at a forward P/E of 8.91, a P/B of 1.55, and a P/S of 0.36, compared to a forward P/E of 57.32, a P/B of 3.60, and a P/S of 1.42 for UAA. M 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

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. M is currently priced at a -2.81% to its one-year price target of 29.57. Comparatively, UAA is 15.2% relative to its price target of 14.28. This suggests that M is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. M has a beta of 0.75 and UAA’s beta is -0.25. UAA’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. M has a short ratio of 4.63 compared to a short interest of 9.57 for UAA. This implies that the market is currently less bearish on the outlook for M.

**Summary**

Macy’s, Inc. (NYSE:M) beats Under Armour, Inc. (NYSE:UAA) on a total of 10 of the 14 factors compared between the two stocks. M is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, M is the cheaper of the two stocks on an earnings, book value and sales basis, M is more undervalued relative to its price target. Finally, M has better sentiment signals based on short interest.