LONDON -- If you're interested in building a profitable, diversified portfolio, then you will often need to compare similar companies when choosing which share to buy next. These comparisons aren't always as easy as they sound, so in this series, I'm going to compare some of the best-known names from the FTSE 100 (UKX), FTSE 250 and the U.S. stock market.

I'm going to use three key criteria -- value, income, and growth -- to compare companies with their sector peers. I've included some U.S. shares, as these provide U.K. investors with access to some of the world's largest and most successful companies. Although there are some tax implications to holding U.S. shares in a U.K. dealing account, they are pretty straightforward and I feel are outweighed by the investing potential of the American market.

Today, I'm going to take a look at High Street giants Marks & Spencer (LSE:MKS) and Debenhams (LSE:DEB). All data is sourced from Morningstar, Reuters, and company reports.

1. Value
The easiest way to lose money on shares is to pay too much for them -- so which share looks better value -- Marks & Spencer, or Debenhams?


Marks & Spencer


Current price-to-earnings ratio (P/E)



Forecasted P/E



Price-to-book ratio (P/B)



Price-to-sales ratio (P/S)



Marks & Spencer and Debenhams are fairly evenly matched here, but Debenhams just takes the advantage, with a lower forecasted P/E (based on 2013 forecast earnings) and a lower P/B ratio. Neither company is an obvious value investment at this time.

2. Income
With low interest rates set to continue for the foreseeable future, dividends have become one of the most popular ways of generating an investment income. How do Marks & Spencer and Debenhams compare in terms of income?


Marks & Spencer


Current dividend yield



5-year average historical yield



5-year dividend average growth rate



Forecast yield



Although Marks & Spencer was forced to cut its dividend during the recession, and has barely increased it over the past three years, it still offers an above-average yield and is a reliable dividend payer. Debenhams is far less attractive as an income share -- its shareholders received no dividend payments in 2009 or 2010 and the firm's yield is much lower than that of Marks & Spencer. For income investors, I think that M&S has the advantage. My only concern is whether M&S will be able to grow its dividend to keep pace with inflation -- something it has failed to do for the past two years.

3. Growth
Even if your main interest is value or income investing, you do need to consider growth. At the very least, a company needs to deliver growth in line with inflation -- and realistically, most successful companies need to grow ahead of inflation if they are to protect their market share and profit margins.

How do Marks & Spencer and Debenhams shape up in terms of growth?


Marks & Spencer


5-year earnings-per-share growth rate



5-year revenue growth rate



5-year share price return



Debenhams is a clear winner here, illustrating how FTSE 250 companies can often outperform their larger peers and deliver strong growth. Although business conditions for High Street retailers have been tough over the past five years, Debenhams has managed to grow both revenue and earnings and has delivered a very strong share price performance. Marks & Spencer has fared much worse; its combination of rising revenue and falling earnings over the past five years has highlighted a fall in profit margins, which are now lower than those of Debenhams.

Marks & Spencer's share price has also performed poorly, as the company's weaker retail performance has prevented it from recapturing the value lost when markets crashed in 2008.

Should you buy Marks & Spencer or Debenhams?
Neither of these two companies is likely to interest value investors, but for income and growth investors they may be worth considering.

From a growth perspective, Debenhams is a clear winner. Its lower forecasted P/E suggests that there could be more upside to the share price if the company delivers expected levels of growth, and its 2012 results made for impressive reading, with like-for-like growth in the U.K. and abroad, plus a 40% lift in online sales. Although Debenhams' margins were squeezed slightly, pre-tax profits were up by 4.2% for the year ending Sept. 1, 2012.

For income investors, Marks & Spencer's 4.3% dividend is attractive, as it is substantially above the FTSE 100 average of 3.3%. However, it's worth noting that the company does not have much headroom to increase the dividend unless it can turn around its clothing sales and deliver meaningful earnings growth. This is a contrast to Debenhams, whose lower dividend is covered more generously and rose by 10% this year. Of course, Debenhams' yield is much lower at present -- but if maximizing future growth potential is your priority, then it might be worth considering Debenhams' income potential.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.