Ulta Beauty (NASDAQ:ULTA) vs. Cato (NYSE:CATO) Critical Analysis

Cato (NYSE:CATO) and Ulta Beauty (NASDAQ:ULTA) are both consumer discretionary companies, but which is the better business? We will contrast the two companies based on the strength of their institutional ownership, dividends, profitability, earnings, analyst recommendations, risk and valuation.

Analyst Recommendations

This is a summary of current recommendations and price targets for Cato and Ulta Beauty, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cato	1	0	0	0	1.00
Ulta Beauty	0	8	24	0	2.75

Ulta Beauty has a consensus target price of $631.30, suggesting a potential upside of 1.10%. Given Ulta Beauty’s stronger consensus rating and higher probable upside, analysts clearly believe Ulta Beauty is more favorable than Cato.

Risk & Volatility

Cato has a beta of 0.55, indicating that its share price is 45% less volatile than the S&P 500. Comparatively, Ulta Beauty has a beta of 0.84, indicating that its share price is 16% less volatile than the S&P 500.

Insider & Institutional Ownership

61.1% of Cato shares are held by institutional investors. Comparatively, 90.4% of Ulta Beauty shares are held by institutional investors. 18.3% of Cato shares are held by company insiders. Comparatively, 0.2% of Ulta Beauty shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Cato and Ulta Beauty”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cato	$653.81 million	0.07	-$5.91 million	($0.30)	-7.75
Ulta Beauty	$12.96 billion	2.06	$1.15 billion	$27.44	22.76

Ulta Beauty has higher revenue and earnings than Cato. Cato is trading at a lower price-to-earnings ratio than Ulta Beauty, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Cato and Ulta Beauty’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Cato	-0.87%	-3.39%	-1.29%
Ulta Beauty	9.34%	45.40%	17.37%

Summary

Ulta Beauty beats Cato on 13 of the 14 factors compared between the two stocks.

About Cato

The Cato Corporation, together with its subsidiaries, operates as a specialty retailer of fashion apparel and accessories primarily in the southeastern United States. It operates through two segments, Retail and Credit. The company's stores and e-commerce websites offer a range of apparel and accessories, including dressy, career, and casual sportswear; and dresses, coats, shoes, lingerie, costume jewelry, and handbags, as well as men's wear, and lines for kids and infants. It operates its stores and e-commerce websites under the Cato, Cato Fashions, Cato Plus, It's Fashion, It's Fashion Metro, and Versona names. It also provides credit card services to its customers, as well as layaway plans for customers. The Cato Corporation was incorporated in 1946 and is headquartered in Charlotte, North Carolina.

About Ulta Beauty

Ulta Beauty, Inc. operates as a specialty beauty retailer in the United States. The company offers branded and private label beauty products, including cosmetics, fragrance, haircare, skincare, bath and body products, professional hair products, and salon styling tools through its Ulta Beauty stores, shop-in-shops, Ulta.com website, and its mobile applications. It also offers beauty services, including hair, makeup, brow, and skin services at its stores. The company was formerly known as ULTA Salon, Cosmetics & Fragrance, Inc. and changed its name to Ulta Beauty, Inc. in January 2017. Ulta Beauty, Inc. was incorporated in 1990 and is based in Bolingbrook, Illinois.