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AAPL   111.20 (-4.63%)
MSFT   202.68 (-4.96%)
FB   267.67 (-5.51%)
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AMZN   3,162.78 (-3.76%)
TSLA   406.02 (-4.39%)
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GE   7.42 (+4.51%)
MU   50.00 (-3.77%)
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BA   148.14 (-4.57%)
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S&P 500   3,271.03 (-3.53%)
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QQQ   271.64 (-3.90%)
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FB   267.67 (-5.51%)
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MU   50.00 (-3.77%)
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American Eagle (NYSE: AEO) Continues To Soar

Friday, October 16, 2020 | Sam Quirke
American Eagle (NYSE: AEO) Continues To SoarA two-year down-trend in American Eagle (NYSE: AEO) shares looks like it’s finally been broken. For a while though this past year, it looked like they were in trouble. Shares had been weak and uninspiring since 2018’s decade high, with their brick and mortar sales-focused strategy clearly not evolving quick enough.

When COVID hit in March, it looked like it was going to be the death knell for the $2 billion teen and young adult retailer. By April, clothing sales were down 79% across the board. American Eagle shares crashed through multi year support and fell all the way back to 2008 levels. But sometimes it takes a near disaster to force the best out of companies. After all, what’s a diamond but a lump of coal that was able to handle some pressure? Shares are now up more than 125% from the lows of April and seem to be at the beginning of a fresh uptrend.

Cloud With A Silver Lining

Like many other stocks out there across various industries, COVID ended up being a blessing in disguise in many ways. There may have already been plans afoot to drive digital and e-commerce sales, but the lockdowns and shutdowns drove consumers to buy online at a scale that would have seemed unimaginable before COVID. Companies that were able to take advantage of it have watched their shares more than recover, while those that have not have had to watch their shares languish at long term lows.

The big driver in American Eagle’s recovery has been growth in their digital sales segment. As reported in their last earnings print in September, a 74% jump in digital revenue helped to make up for the overall drop in sales of 15%. The closure of malls, where American Eagle has most of their stores, was a crippling blow to a company that had been working hard to turn things around.

But the jump in digital sales has given them an opportunity to rethink and redefine who they are and how they can appeal to consumers as we turn into a new decade. Their Aerie sub-brand, known for its intimate apparel pieces, has in particular been the shining star that the recovery has been built around. September’s earnings showed digital revenues for Aerie alone jumped more than 140%. It turns out that even in the midst of a pandemic, people still want to buy fashionable underwear and American Eagle has been more than willing to provide. Going forward, there’s every reason to think this trend towards digital will continue.

Solid Momentum

As Wall Street digested the earnings report last month, sell-side firms weren’t slow about coming out in the bulls corner. JPMorgan have since maintained their Overweight rating and believe the company is at “a positive multi-year inflection point with Aerie’s double-digit top/bottom-line profile (including high-teens+ annual footage growth & double-digit comps) reaching scale at $1B revenues and AE brand store closures representing a positive sum-of-the-parts catalyst”.

Management is still on track to open upwards of 70 fresh new stores this year which speaks volumes to their confidence in their ability to continue delivering. Still, it’s unlikely to be all plain sailing and there are some who are urging caution.

On Wednesday, Loop Capital were out with a Hold rating on the stock, moving it up from a Sell. Analyst Laura Champine struck a cautiously bullish tone when she said "though there is still massive uncertainty leading into the holiday, we see a consumer that is eager to return to a more normal lifestyle. We still believe the back-to-school season was down YoY, but there is a likelihood for sequential improvement that is greater than our previous estimate”.

Loop’s price target of $15 is right around where AEO is trading right now and Wall Street will be watching their next earnings release closely to see if they can keep the rally going. For now though, American Eagle is definitely back and striving to be better than ever.

American Eagle (NYSE: AEO) Continues To Soar

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
American Eagle Outfitters (AEO)1.3$13.61-2.2%N/A-12.26Buy$15.25
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8 Stocks Under $10 and On Sale Right Now

During times of market volatility, investors are looking to get return anywhere they can. One approach is to find cheap stocks (i.e. stocks that trade for less than $10). It’s not surprising that many of the cheap stocks can be found on Robinhood. This trading app is popular among millennial investors. And those investors are willing to speculate on cheap stocks.

And it’s easy to see why. Buying 100 shares of a stock that is trading for $5 can seem to be a wise investment if the stock moves higher. After all, if the stock price increases just $1, investors can see a 20% gain.

But that is not always the case. In fact, it’s not usually the case. The trap that some investors fall into is believing that these stocks can be the next Amazon or Apple. And while they do offer a potential reward, they also carry significant risk. It’s important to remember that when a stock is selling for less than $10, there’s usually a reason. And in some cases, it means the stock is under selling pressure.

This is one time when it’s important to remember that inexpensive does not necessarily mean the stock is a good value. However, there are some quality stocks that can be found in the bargain bin. And for many of these stocks, the value is found in a solid dividend that can reward income investors.

View the "8 Stocks Under $10 and On Sale Right Now".

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