Investors looking for a potential investment opportunity may want to consider F5 stock over Abercrombie & Fitch. Despite ANF stock’s recent impressive performance, with a 24% rise following an upbeat Q1 report, F5 is believed to offer better long-term returns. The higher valuation multiple assigned to F5, at 3.5x revenues compared to Abercrombie’s 2.4x, reflects F5’s superior profitability and solid financial position.
While ANF stock has seen significant gains of 850% over the past three years, FFIV stock has only moved slightly, with a 5% decrease. The performance of both stocks compared to the S&P 500 index has been inconsistent, with FFIV and ANF underperforming in 2022. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the index each year over the same period, suggesting that a diversified approach may offer better returns with less risk.
Abercrombie has shown better revenue growth compared to F5, with a 11.4% average annual growth rate over the last three years. F5, on the other hand, has seen a 6.2% average annual growth rate. Abercrombie’s revenue increase is driven by strong performance from its brands and has recently raised its full-year outlook to 10% sales growth. F5, on the other hand, is expected to have slower sales growth in the coming years.
In terms of profitability, F5 has a higher operating margin compared to Abercrombie. Despite facing challenges with rising component costs, F5’s margin improved from 17.1% in 2020 to 19.1% in 2023. Abercrombie’s operating margin also improved but is still lower than F5’s. F5 also has a better debt position compared to Abercrombie, with lower debt as a percentage of equity.
When considering the prospects using the P/S ratio as a base, F5 appears to offer higher potential returns over the next three years. F5 stock is currently trading at 3.7x revenues, below its five-year average of 4.1x, while ANF stock is trading above its historical average. While ANF stock has seen positive performance already priced in, F5 is seen as a better pick due to its comparatively lower valuation multiple.
Overall, F5 is believed to offer better returns over the next three years compared to Abercrombie & Fitch. Despite ANF stock’s recent strong performance, F5’s profitability, financial position, and valuation make it a more attractive investment option. Investors seeking potential growth opportunities may find F5 stock to be a more appealing choice in the current market environment.
