With a daily loss of 4.83% and a 3-month gain of 26.18%, American Eagle Outfitters Inc (AEO, Financial) has an Earnings Per Share (EPS) (EPS) of 1.04. The question at hand is whether the stock is modestly undervalued. This article provides a comprehensive valuation analysis of American Eagle Outfitters, encouraging readers to delve into the intricate financial details of the company.
A Snapshot of American Eagle Outfitters Inc
American Eagle Outfitters Inc is a globally recognized apparel and accessory retailer with company stores in the U.S., Canada, Mexico, and Hong Kong. The company also has a thriving online business that ships worldwide. The majority of its revenue comes from its primary brand, American Eagle, which offers a specialty apparel and accessories assortment for women and men. The company's current stock price is $14.67, while the GF Value, an estimation of fair value, stands at $16.89.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
With a current price of $14.67 per share and a market cap of $2.90 billion, American Eagle Outfitters stock shows every sign of being modestly undervalued. As the stock is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of American Eagle Outfitters
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. American Eagle Outfitters has a cash-to-debt ratio of 0.14, which ranks worse than 75.27% of 1100 companies in the Retail - Cyclical industry. Based on this, GuruFocus ranks American Eagle Outfitters's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth of American Eagle Outfitters
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. American Eagle Outfitters has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $5 billion and an EPS of $1.04. Its operating margin is 6.43%, which ranks better than 65.7% of 1105 companies in the Retail - Cyclical industry.
Growth is probably one of the most important factors in the valuation of a company. American Eagle Outfitters's 3-year average revenue growth rate is worse than 63.48% of 1046 companies in the Retail - Cyclical industry. American Eagle Outfitters's 3-year average EBITDA growth rate is -12%, which ranks worse than 82.81% of 896 companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, American Eagle Outfitters's ROIC was 7.53 while its WACC came in at 9.28.
Conclusion
In summary, the stock of American Eagle Outfitters shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 82.81% of 896 companies in the Retail - Cyclical industry. To learn more about American Eagle Outfitters stock, you can check out its 30-Year Financials here.
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