Summary
Shares of AEO have been crushed since August but the chart and the fundamentals suggest a buy can be considered here.
We are thoroughly impressed with comparable sales growth from the firm.
An improving cash position and shareholder-friendly policies are another reason to like the name.
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American Eagle Outfitters (AEO) is a name that we recommended for a trade back in summer 2017 and it was quite successful. The reason that we are revisiting the name today is that we believe it is setting up for another possible entry point here below $18 per share. In short, if it comes down some more, we think there are several reasons to consider the name. We like the outlook here, we like the dividend and yield, performance is much stronger than a year ago, and the company is seeing double-digit growth in digital sales. The chart suggests a buy sub-$18 and the valuation is quite reasonable here. Let us discuss.
Attractive entry?
The company recently reported its Q3 and shares are well below where they were after the initial selloff and rally. Much of this of course has to do with general market malaise. Shares look primed for a rally. We think that bad news is priced into the name here and that the quarter certainly was much better than we expected. Make no mistake, it certainly was not weak, at least versus the conservative expectations.
