European Apparel Retail: Inditex v. H&M

Over the last four years, analyst buy ratings in the MSCI Europe Apparel Retail sub-industry have hovered right around 50% for Inditex while those for H&M have expanded from ~15% to ~50% over the last year or so:

Inditex


H&M


In addition to similar analyst assessments, the valuations for these two rivals do not vary by much...


Each of the companies' investment profile includes spending ~10% of sales on intangible investments such as advertising...


Margins and returns are not dramatically different...



So, you may be wondering, are there any distinguishing characteristics between these two retail heavyweights?  For us, the answer comes in the form of our point-and-figure charts.  Designed to help us focus on the relative strength of each constituent versus the benchmark index, this methodology helps to identify useful trends and, most importantly, to avoid buying stocks with unfavorable technical profiles.




While H&M may be in an unexciting trading-range pattern, Inditex appears to be forming a top that will give way to a sustained downtrend sometime in the near future.  It is important to remember that these charts are not meant to PREDICT a move in a stock's price but, rather, to help us better adapt to the manner in which that stock is behaving.  In this case, Inditex would seem to be a much riskier bet-- in spite of incredibly similar fundamental assessments of these two companies.