Critical Comparison: Fred’s, Inc. (FRED) vs. Burlington Stores, Inc. (BURL)

Fred’s, Inc. (NASDAQ:FRED) shares are up more than 0.99% this year and recently increased 5.14% or $0.2 to settle at $4.09. Burlington Stores, Inc. (NYSE:BURL), on the other hand, is down -0.59% year to date as of 01/11/2018. It currently trades at $122.30 and has returned -0.14% during the past week.

Fred’s, Inc. (NASDAQ:FRED) and Burlington Stores, Inc. (NYSE:BURL) are the two most active stocks in the Discount, Variety Stores industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.


The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. 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. EBITDA margin of 11.1% for Burlington Stores, Inc. (BURL). FRED’s ROI is -13.80% while BURL has a ROI of 24.20%. The interpretation is that BURL’s business generates a higher return on investment than FRED’s.

Cash Flow 

If there’s one thing investors care more about than earnings, it’s cash flow. FRED’s free cash flow (“FCF”) per share for the trailing twelve months was -0.80. Comparatively, BURL’s free cash flow per share was +0.93. On a percent-of-sales basis, FRED’s free cash flow was -1.44% 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

Liquidity and leverage ratios are important because they reveal the financial health of a company. FRED has a current ratio of 1.80 compared to 1.00 for BURL. This means that FRED can more easily cover its most immediate liabilities over the next twelve months.


FRED trades at a P/B of 0.71, and a P/S of 0.08, compared to a forward P/E of 24.44, and a P/S of 1.41 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FRED is currently priced at a -9.11% to its one-year price target of 4.50. Comparatively, BURL is 3.08% relative to its price target of 118.65. This suggests that FRED 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 3.00 for FRED and 1.90 for BURL, which implies that analysts are more bullish on the outlook for FRED.

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. FRED has a beta of 1.88 and BURL’s beta is 0.54. BURL’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. FRED has a short ratio of 14.31 compared to a short interest of 4.39 for BURL. This implies that the market is currently less bearish on the outlook for BURL.


Burlington Stores, Inc. (NYSE:BURL) beats Fred’s, Inc. (NASDAQ:FRED) on a total of 10 of the 14 factors compared between the two stocks. BURL higher liquidity, 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, BURL has better sentiment signals based on short interest.

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