Critical Review: Advance Auto Parts (NYSE:AAP) and Citi Trends (NASDAQ:CTRN)

Advance Auto Parts (NYSE:AAP) and Citi Trends (NASDAQ:CTRN) are both consumer discretionary companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, risk, institutional ownership, dividends, earnings, analyst recommendations and profitability.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Advance Auto Parts and Citi Trends, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Advance Auto Parts	3	15	3	0	2.00
Citi Trends	1	0	2	0	2.33

Advance Auto Parts presently has a consensus price target of $47.50, suggesting a potential upside of 3.23%. Citi Trends has a consensus price target of $81.00, suggesting a potential upside of 74.19%. Given Citi Trends’ stronger consensus rating and higher probable upside, analysts plainly believe Citi Trends is more favorable than Advance Auto Parts.

Profitability

This table compares Advance Auto Parts and Citi Trends’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Advance Auto Parts	1.16%	9.41%	1.77%
Citi Trends	0.84%	8.11%	2.00%

Dividends

Advance Auto Parts pays an annual dividend of $1.00 per share and has a dividend yield of 2.2%. Citi Trends pays an annual dividend of $0.32 per share and has a dividend yield of 0.7%. Advance Auto Parts pays out 61.0% of its earnings in the form of a dividend. Citi Trends pays out 39.0% 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. Advance Auto Parts has raised its dividend for 1 consecutive years. Advance Auto Parts is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

Advance Auto Parts has a beta of 1.02, indicating that its share price is 2% more volatile than the S&P 500. Comparatively, Citi Trends has a beta of 1.85, indicating that its share price is 85% more volatile than the S&P 500.

Valuation and Earnings

This table compares Advance Auto Parts and Citi Trends”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Advance Auto Parts	$8.60 billion	0.32	$44.00 million	$1.64	28.06
Citi Trends	$869.97 million	0.45	$5.21 million	$0.82	56.71

Advance Auto Parts has higher revenue and earnings than Citi Trends. Advance Auto Parts is trading at a lower price-to-earnings ratio than Citi Trends, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

88.7% of Advance Auto Parts shares are held by institutional investors. 0.8% of Advance Auto Parts shares are held by company insiders. Comparatively, 9.6% of Citi Trends shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Summary

Advance Auto Parts beats Citi Trends on 9 of the 17 factors compared between the two stocks.

About Advance Auto Parts

Advance Auto Parts, Inc. provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. The company offers battery accessories; belts and hoses; brakes and brake pads; chassis and climate control parts; clutches and drive shafts; engines and engine parts; exhaust systems and parts; hub assemblies; ignition components and wires; radiators and cooling parts; starters and alternators; and steering and alignment parts. It also offers air conditioning chemicals and accessories; air fresheners; antifreeze and washer fluids; electrical wires and fuses; electronics; floor mats, seat covers, and interior accessories; hand and specialty tools; lighting products; performance parts; sealants, adhesives, and compounds; tire repair accessories; vent shades, mirrors and exterior accessories; washes, waxes and cleaning supplies; and wiper blades. In addition, the company offers air filters; fuel and oil additives; fuel filters; grease and lubricants; motor oils; oil filters, part cleaners and treatments; and transmission fluids for engine maintenance. Further, it offers battery and wiper installation; engine light scanning and checking; electrical system testing, including batteries, starters, and alternators; oil and battery recycling; and loaner tool program services. Additionally, the company sells its products through its website. It serves professional installers and do-it-yourself customers. The company operates stores under the Advance Auto Parts and Carquest names, as well as branches under the Worldpac name. The company has stores in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada; and independently owned Carquest branded stores in Mexico and various Caribbean Islands. Advance Auto Parts, Inc. was founded in 1929 and is based in Raleigh, North Carolina.

About Citi Trends

Citi Trends, Inc. operates as a value retailer of fashion apparel, accessories, and home goods. The company offers apparel, such as fashion sportswear and footwear for men and ladies, as well as apparel for kids, including newborns, infants, toddlers, boys, and girls; sleepwear, lingerie, and scrubs for ladies; and kids uniforms and accessories. It also provides accessories and beauty products that include handbags, luggage, hats, belts, sunglasses, jewelry, and watches, as well as offers outerwear for men and women. In addition, the company offers home and lifestyle products comprising home products for the bedroom, bathroom, kitchen, and decorative accessories; and food, tech, team sports, health and products, as well as seasonal items, books, and toys. Citi Trends, Inc. provides its products primarily to African American and multicultural families in the United States. The company was formerly known as Allied Fashion, Inc. and changed its name to Citi Trends, Inc. in 2001. Citi Trends, Inc. was founded in 1946 and is headquartered in Savannah, Georgia.