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Is American Eagle (AEO) a Great Pick for Value Investors?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put American Eagle Outfitters, Inc. (AEO - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, American Eagle has a trailing twelve months PE ratio of 10.6. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.
If we focus on the long-term trend of the stock the current level puts American Eagle’s current PE among its lower zone, well below its median for the term (which stands at 15.1x). Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE compares favorably with its industry’s trailing twelve months PE ratio, which stands at 11.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, American Eagle has a P/S ratio of about 0.6. This is slightly higher than the industry average, which comes in at 0.5x right now.
If anything, AEO is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, American Eagle currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes American Eagle a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for American Eagle is just 1.3, a level that is lower than the industry average of 1.4. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 5.7, which is better than the industry average of 6.6. Clearly, AEO is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though American Eagle might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of B and a Momentum score of A. This gives AEO a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>).
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, American Eagle seems to have pretty striking prospects.
Meanwhile, the company’s earnings estimates have been trending upward lately. The current quarter has seen three estimates go higher in the past thirty days compared to one lower, while the full year estimate has seen eight upward revisions and no downward revision in the same time period.
This has had a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past month, while the full year estimate has increased 3.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
American Eagle Outfitters, Inc. Price and Consensus
The stock holds a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term. However, American Eagle is enjoying bullish analyst sentiment, as indicated by the positive estimate revisions, and this works in the company’s favor.
Bottom Line
American Eagle is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the Bottom 29% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, its industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Is American Eagle (AEO) a Great Pick for Value Investors?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put American Eagle Outfitters, Inc. (AEO - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, American Eagle has a trailing twelve months PE ratio of 10.6. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.
If we focus on the long-term trend of the stock the current level puts American Eagle’s current PE among its lower zone, well below its median for the term (which stands at 15.1x). Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE compares favorably with its industry’s trailing twelve months PE ratio, which stands at 11.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, American Eagle has a P/S ratio of about 0.6. This is slightly higher than the industry average, which comes in at 0.5x right now.
If anything, AEO is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, American Eagle currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes American Eagle a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for American Eagle is just 1.3, a level that is lower than the industry average of 1.4. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 5.7, which is better than the industry average of 6.6. Clearly, AEO is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though American Eagle might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of B and a Momentum score of A. This gives AEO a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>).
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, American Eagle seems to have pretty striking prospects.
Meanwhile, the company’s earnings estimates have been trending upward lately. The current quarter has seen three estimates go higher in the past thirty days compared to one lower, while the full year estimate has seen eight upward revisions and no downward revision in the same time period.
This has had a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past month, while the full year estimate has increased 3.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
American Eagle Outfitters, Inc. Price and Consensus
American Eagle Outfitters, Inc. Price and Consensus | American Eagle Outfitters, Inc. Quote
The stock holds a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term. However, American Eagle is enjoying bullish analyst sentiment, as indicated by the positive estimate revisions, and this works in the company’s favor.
Bottom Line
American Eagle is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the Bottom 29% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, its industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>