Macy’s, Inc. (NYSE:M) shares are up more than 15.72% this year and recently decreased -2.18% or -$0.65 to settle at $29.15. ZTO Express (Cayman) Inc. (NYSE:ZTO), on the other hand, is down -4.36% year to date as of 04/09/2018. It currently trades at $14.96 and has returned 1.70% during the past week.
Macy’s, Inc. (NYSE:M) and ZTO Express (Cayman) Inc. (NYSE:ZTO) 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, ZTO is expected to grow at a 1.07% annual rate. All else equal, M’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. 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 ZTO has a ROI of 89.30%. The interpretation is that ZTO’s business generates a higher return on investment than M’s.Cash Flow
Cash is king when it comes to investing. M’s free cash flow (“FCF”) per share for the trailing twelve months was +4.27. Comparatively, ZTO’s free cash flow per share was -. On a percent-of-sales basis, M’s free cash flow was 5.24% while ZTO converted 0% 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 3.00 for ZTO. This means that ZTO 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 0.01 for ZTO. M is therefore the more solvent of the two companies, and has lower financial risk.Valuation
M trades at a forward P/E of 9.06, a P/B of 1.57, and a P/S of 0.37, compared to a forward P/E of 13.43, a P/B of 3.14, and a P/S of 5.24 for ZTO. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. M is currently priced at a -1.88% to its one-year price target of 29.71. Comparatively, ZTO is -21.06% relative to its price target of 18.95. This suggests that ZTO is the better investment over the next year.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. M has a short ratio of 5.09 compared to a short interest of 6.46 for ZTO. This implies that the market is currently less bearish on the outlook for M.Summary
Macy’s, Inc. (NYSE:M) beats ZTO Express (Cayman) Inc. (NYSE:ZTO) on a total of 8 of the 14 factors compared between the two stocks. M is growing fastly, is more profitable, 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, Finally, M has better sentiment signals based on short interest.