On September 08, 2023, American Eagle Outfitters (AEO, Financial) experienced a daily loss of 4.47%, despite a 3-month gain of 36.58%. With an Earnings Per Share (EPS) of 1.04, the question arises: is the stock fairly valued? This article will provide a comprehensive analysis of American Eagle Outfitters' financial health, profitability, and intrinsic value to answer this question. Let's dive in.
An Overview of American Eagle Outfitters Inc
American Eagle Outfitters Inc, an apparel and accessory retailer, operates company stores in the U.S., Canada, Mexico, and Hong Kong. The company leases all store premises, regional distribution facilities, some office space, and certain information technology and office equipment. It also runs an online business that ships worldwide, operating in two segments: American Eagle and Aerie. The majority of its revenue comes from its primary brand, American Eagle, which offers an assortment of specialty apparel and accessories for women and men. The company generates most of its revenue from the United States.
Understanding the GF Value
The GF Value provides an estimation of a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, the stock is likely overvalued and may yield poor future returns. Conversely, if it's significantly below the GF Value Line, the stock may be undervalued, indicating potentially higher future returns.
Given this, American Eagle Outfitters' stock appears to be fairly valued at its current price of $16.02 per share. As such, the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Factors like the cash-to-debt ratio and interest coverage offer insight into a company's financial health. American Eagle Outfitters has a cash-to-debt ratio of 0.14, ranking worse than 75.55% of 1100 companies in the Retail - Cyclical industry. Overall, American Eagle Outfitters' financial strength is fair, with a score of 6 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. American Eagle Outfitters has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $5 billion and Earnings Per Share (EPS) of $1.04. Its operating margin is 6.43%, ranking better than 65.66% of 1098 companies in the Retail - Cyclical industry. Overall, American Eagle Outfitters' profitability is fair, with a rank of 7 out of 10.
Growth is a vital factor in a company's valuation. The 3-year average annual revenue growth rate of American Eagle Outfitters is -1.2%, ranking worse than 63.73% of 1045 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is -12%, ranking worse than 82.85% of 898 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) offers another perspective on its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, American Eagle Outfitters' ROIC is 7.53, and its cost of capital is 9.52.
Conclusion
In conclusion, the stock of American Eagle Outfitters (AEO, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 82.85% of 898 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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