In a comparison between F5 Networks (NASDAQ: FFIV) and Abercrombie & Fitch (NYSE: ANF), two companies with similar market capitalizations of around $10 billion, F5 emerges as the stronger pick. Despite Abercrombie’s recent stock rally following an upbeat Q1 report and raised full-year outlook, F5 has better prospects due to its superior profitability and solid financial position. While ANF stock is up 2x year-to-date, FFIV stock is down 5%.
The performance of FFIV and ANF stock has been inconsistent compared to the S&P 500 index, with FFIV stock seeing minimal changes while ANF stock has experienced strong gains. However, the Trefis High-Quality Portfolio has consistently outperformed the S&P 500, indicating a lower-risk and higher-return investment strategy. Given the current economic environment, FFIV stock is expected to fare better than ANF despite the latter’s recent rally.
Abercrombie has shown better revenue growth compared to F5, with a 11.4% average annual growth rate over the last three years. This growth has been driven by strong performance from its Abercrombie brand and disciplined inventory management. F5, on the other hand, has seen a slower revenue growth of 6.2% annually. Looking ahead, F5 is expected to have slower sales growth compared to Abercrombie, with F5’s top line expanding at a 3% CAGR to $3 billion in three years.
In terms of profitability, F5 is more favorable than Abercrombie, with improving operating margins and a better debt position. F5’s operating margin increased from 17.1% to 19.1% between 2020 and 2023, while Abercrombie’s margin expanded from 1.7% to 11.3% over the same period. F5 has a lower debt percentage of equity compared to Abercrombie, indicating a safer financial position.
When considering prospects using P/S as a basis, F5 is projected to offer higher returns in the next three years compared to Abercrombie. F5’s current valuation multiples are more favorable than its historical averages, with the stock trading at 3.7x revenues compared to its last five-year average of 4.1x. In contrast, ANF stock is trading at 2.4x revenues, significantly higher than its historical average of 0.5x. Overall, F5 is seen as a better pick due to its comparatively lower valuation and stronger financial position.
Despite Abercrombie’s recent stock rally, F5 is predicted to offer better returns in the coming years. With its higher profitability, stronger financial position, and more favorable valuation multiples, F5 Networks is positioned to outperform Abercrombie & Fitch in the next three years. Investors looking for a stable and competitive investment option may find F5 to be a more promising choice.
