American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) is currently trading at a notably low price-to-earnings (P/E) multiple, which is below the Zacks  Retail - Apparel and Shoes industry and broader Retail-Wholesale  averages. AEO's forward 12-month P/E ratio is 10.30, lower than the industry average of 15.47 and the sector average of 23.56.

Image Source: Zacks Investment Research

The stock is undervalued compared with its industry peers, offering compelling value to investors looking for exposure to the retail apparel sector. Furthermore, AEO's Value Score of A underscores its appeal as a potential investment.

AEO has gained 7% compared with the industry’s growth of 19.3% in the past year. The company benefits from a strong brand presence and loyal customer base, especially among younger consumers. By continuing to emphasize innovation, marketing and e-commerce initiatives, AEO is well-positioned to enhance its growth trajectory.

Image Source: Zacks Investment Research

AEO Stock’s Growth Plan Strategy Bodes Well

American Eagle's performance is backed by brand strength and gains from progress on its Powering Profitable Growth strategy. This plan aims to increase operating income by mid-to-high teens percentages, reaching over $570 million by the end of fiscal 2026. This means the company expects an operating margin of about 10%, a 300-basis point increase in the next few years.

The strategy also targets 3-5% annual revenue growth, aiming for total revenues of $5.7 to $6 billion by fiscal 2026. American Eagle is focused on strengthening its brands, improving operations and practicing good financial management.

In addition, the Real Power Real Growth plan aims to boost profitability by optimizing real estate and inventory, focusing on customer needs and investing in the supply chain. As part of this initiative, American Eagle is looking to grow its Aerie brand in new markets by introducing innovative products and attracting more customers. The company has seen positive results, especially with its new "lived-in" store design, implemented in nearly 30 locations and remodeled stores.

More on AEO Stock

American Eagle has been experiencing remarkable success with its Aerie brand, which reported a 9% increase in sales in the second quarter of fiscal 2024. The company is focused on enhancing brand awareness and expanding into new categories, with new Aerie and offline stores performing well and broadening its customer base. Key growth drivers include the Soft Apparel category and the expansion into Activewear. 

AEO is seeing revived strength in its flagship American Eagle brand, revitalizing brand strength and reconnecting with consumers in a big way. A key driver behind this resurgence is American Eagle's focus on enhancing the customer experience, both online and in-store, with its seamless omni-channel strategy and innovative store concepts. These initiatives are helping American Eagle reconnect with consumers effectively.

Revised Estimates Signal Strength in AEO Stock

Reflecting the positive sentiment, the Zacks Consensus Estimate for AEO’s fiscal 2024 remains unchanged and has risen 1% for fiscal 2025 in the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.

For fiscal 2024, the Zacks Consensus Estimate for AEO’s sales and EPS imply 2.5% and 17.1% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicate 3.5% and 9.1% year-over-year increases, respectively.

How to Play AEO Stock?

Investors may find American Eagle an attractive stock due to its compelling valuation and strong growth prospects. With a forward P/E ratio indicating potential undervaluation, AEO is well-positioned to benefit from its targeted initiatives across key segments. The company’s Powering Profitable Growth and Real Power Real Growth plans focus on enhancing profitability through innovation, operational efficiency and strategic market share expansion. These initiatives are expected to support robust, long-term growth, making AEO an appealing option for investors interested in the retail sector. Additionally, AEO’s current Zacks Rank #2 (Buy) reinforces its appeal as a solid investment opportunity.

Three Other Picks You Can’t Miss

We have highlighted three other top-ranked stocks in the broader industry, namely Boot Barn (BOOT Quick QuoteBOOT - Free Report) , Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) and The Gap, Inc. (GAP Quick QuoteGAP - Free Report) .

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 6.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share indicate growth of 13.1% and 12.9%, respectively, from the year-ago figures.

Abercrombie, a leading casual apparel retailer, presently has a Zacks Rank #2. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.

The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicate growth of 13% and 63.4%, respectively, from the year-ago reported figures. 

The Gap  is a premier international specialty retailer offering diverse clothing, accessories, and personal care products. It currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for The Gap’s fiscal 2024 earnings and sales indicate growth of 31.5% and 0.5%, respectively, from the year-ago actuals. GAP has a trailing four-quarter average earnings surprise of 142.8%.