American Eagle Outfitters Stock To $17?
American Eagle Outfitters (AEO) stock has jumped 15% during the past day, and is currently trading at $23.97. Our multi-factor assessment suggests that it may be time to sell AEO stock. We have, overall, a pessimistic view of the stock, and a price of $17 may not be out of reach. We believe there are several things to fear in AEO stock given its overall Very Weak operating performance and financial condition. Hence, despite its Low valuation, we think that the stock is Unattractive.
Below is our assessment:
| CONCLUSION | |
|---|---|
| What you pay: | |
| Valuation | Low |
| What you get: | |
| Growth | Very Weak |
| Profitability | Very Weak |
| Financial Stability | Weak |
| Downturn Resilience | Very Weak |
| Operating Performance | Very Weak |
| Stock Opinion | Unattractive |
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Let’s get into details of each of the assessed factors but before that, for quick background: With $4.1 Bil in market cap, American Eagle Outfitters provides clothing, accessories, and personal care products through multiple brands and operates numerous stores across the United States, Canada, Mexico, and Hong Kong.
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[1] Valuation Looks Low
| AEO | S&P 500 | |
|---|---|---|
| Price-to-Sales Ratio | 0.3 | 3.2 |
| Price-to-Earnings Ratio | 8.4 | 23.5 |
| Price-to-Free Cash Flow Ratio | 10.9 | 20.5 |
This table highlights how AEO is valued vs broader market. For more details see: AEO Valuation Ratios
[2] Growth Is Very Weak
- American Eagle Outfitters has seen its top line grow at an average rate of 1.6% over the last 3 years
- Its revenues have fallen -2.7% from $5.4 Bil to $5.3 Bil in the last 12 months
- Also, its quarterly revenues declined -0.6% to $1.3 Bil in the most recent quarter from $1.3 Bil a year ago.
| AEO | S&P 500 | |
|---|---|---|
| 3-Year Average | 1.6% | 5.5% |
| Latest Twelve Months* | -2.7% | 6.1% |
| Most Recent Quarter (YoY)* | -0.6% | 7.1% |
This table highlights how AEO is growing vs broader market. For more details see: AEO Revenue Comparison
[3] Profitability Appears Very Weak
- AEO last 12 month operating income was $301 Mil representing operating margin of 5.7%
- With cash flow margin of 7.8%, it generated nearly $410 Mil in operating cash flow over this period
- For the same period, AEO generated nearly $197 Mil in net income, suggesting net margin of about 3.7%
| AEO | S&P 500 | |
|---|---|---|
| Current Operating Margin | 5.7% | 18.8% |
| Current OCF Margin | 7.8% | 20.5% |
| Current Net Income Margin | 3.7% | 13.1% |
This table highlights how AEO profitability vs broader market. For more details see: AEO Operating Income Comparison
[4] Financial Stability Looks Weak
- AEO Debt was $2.0 Bil at the end of the most recent quarter, while its current Market Cap is $4.1 Bil. This implies Debt-to-Equity Ratio of 120.7%
- AEO Cash (including cash equivalents) makes up $127 Mil of $4.1 Bil in total Assets. This yields a Cash-to-Assets Ratio of 3.1%
| AEO | S&P 500 | |
|---|---|---|
| Current Debt-to-Equity Ratio | 120.7% | 20.4% |
| Current Cash-to-Assets Ratio | 3.1% | 7.0% |
[5] Downturn Resilience Is Very Weak
AEO has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
2022 Inflation Shock
- AEO stock fell 74.3% from a high of $37.87 on 23 April 2021 to $9.73 on 30 September 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $26.20 on 1 April 2024 , and currently trades at $23.97
| AEO | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -74.3% | -25.4% |
| Time to Full Recovery | Not Fully Recovered | 464 days |
2020 Covid Pandemic
- AEO stock fell 55.0% from a high of $14.96 on 12 February 2020 to $6.73 on 22 April 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 16 September 2020
| AEO | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -55.0% | -33.9% |
| Time to Full Recovery | 147 days | 148 days |
2008 Global Financial Crisis
- AEO stock fell 79.3% from a high of $34.34 on 16 January 2007 to $7.11 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 16 April 2021
| AEO | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -79.3% | -56.8% |
| Time to Full Recovery | 4530 days | 1480 days |
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read AEO Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
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