Critical Contrast: Best Buy (NYSE:BBY) versus Ross Stores (NASDAQ:ROST)

Ross Stores (NASDAQ:ROST) and Best Buy (NYSE:BBY) are both large-cap consumer discretionary companies, but which is the better business? We will contrast the two businesses based on the strength of their dividends, analyst recommendations, risk, valuation, profitability, institutional ownership and earnings.

Earnings and Valuation

This table compares Ross Stores and Best Buy”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ross Stores	$24.51 billion	3.01	$2.15 billion	$8.26	27.93
Best Buy	$41.69 billion	0.46	$1.07 billion	$6.01	15.03

Ross Stores has higher earnings, but lower revenue than Best Buy. Best Buy is trading at a lower price-to-earnings ratio than Ross Stores, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Ross Stores has a beta of 0.85, indicating that its stock price is 15% less volatile than the S&P 500. Comparatively, Best Buy has a beta of 1.28, indicating that its stock price is 28% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings for Ross Stores and Best Buy, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ross Stores	0	6	15	0	2.71
Best Buy	2	13	7	0	2.23

Ross Stores presently has a consensus target price of $263.76, indicating a potential upside of 14.34%. Best Buy has a consensus target price of $85.40, indicating a potential downside of 5.48%. Given Ross Stores’ stronger consensus rating and higher probable upside, equities analysts plainly believe Ross Stores is more favorable than Best Buy.

Profitability

This table compares Ross Stores and Best Buy’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ross Stores	10.85%	39.29%	15.79%
Best Buy	3.01%	48.14%	9.16%

Insider & Institutional Ownership

86.9% of Ross Stores shares are held by institutional investors. Comparatively, 81.0% of Best Buy shares are held by institutional investors. 2.1% of Ross Stores shares are held by company insiders. Comparatively, 0.5% of Best Buy shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Dividends

Ross Stores pays an annual dividend of $1.78 per share and has a dividend yield of 0.8%. Best Buy pays an annual dividend of $3.84 per share and has a dividend yield of 4.3%. Ross Stores pays out 21.5% of its earnings in the form of a dividend. Best Buy pays out 63.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Ross Stores has increased its dividend for 6 consecutive years and Best Buy has increased its dividend for 22 consecutive years. Best Buy is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Ross Stores beats Best Buy on 12 of the 17 factors compared between the two stocks.

About Ross Stores

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brand names in the United States. Its stores primarily offer apparel, accessories, footwear, and home fashions. The company’s Ross Dress for Less stores sell its products at department and specialty stores to middle income households; and dd’s DISCOUNTS stores sell its products at department and discount stores for households with moderate income. Ross Stores, Inc. was incorporated in 1957 and is headquartered in Dublin, California.

About Best Buy

Best Buy Co., Inc. engages in the retail of technology products in the United States, Canada, and international. Its stores provide computing and mobile phone products, such as desktops, notebooks, and peripherals; mobile phones comprising related mobile network carrier commissions; networking products; tablets covering e-readers; smartwatches; and consumer electronics consisting of digital imaging, health and fitness products, portable audio comprising headphones and portable speakers, and smart home products, as well as home theaters, which includes home theater accessories, soundbars, and televisions. The company's stores also offer appliances, such as dishwashers, laundry, ovens, refrigerators, blenders, coffee makers, vacuums, and personal care; entertainment products consisting of drones, peripherals, movies, and toys, as well as hardware and software, and virtual reality and other software products; and other products, such as baby, food and beverage, luggage, outdoor living, and sporting goods. In addition, it provides delivery, installation, memberships, repair, set-up, technical support, health-related, and warranty-related services. The company offers its products through stores and websites under the Best Buy, Best Buy Ads, Best Buy Business, Best Buy Health, Buy Mobile, CST, Current Health, Geek Squad, Lively, Magnolia, Pacific Kitchen, Home, TechLiquidators, and Yardbird brands, as well as domain names comprising bestbuy.com, currenthealth.com, lively.com, techliquidators.com, yardbird.com, and bestbuy.ca. The company was formerly known as Sound of Music, Inc. Best Buy Co., Inc. was incorporated in 1966 and is headquartered in Richfield, Minnesota.