Aeropostale, Inc. (ARO), Under Armour Inc (UA): Going Out of Style?

Page 1 of 2

Danger! Danger! Many companies rely on consumers wanting to wear the brand, but as soon as consumer sentiment leaves so do profits. Being caught in a stock who’s product is no longer popular is a bad scenario for investors. Let’s take a look at three businesses that depend on brand name, and I will asses a danger score from 1 to 5 for each — 5 being the worst.

87 is not heading to heaven

Aeropostale, Inc. (NYSE:ARO)

Aeropostale, Inc. (NYSE:ARO) used to be the thing to wear, but not so much any more. The standard t-shirt with “Aeropostale 87″ on it has disappeared. I guess it isn’t cool to wear Aeropostale, Inc. (NYSE:ARO) anymore, and my hunch is backed by the numbers. Aeropostale’s comparable store sales declined by 14% in the first quarter of fiscal 2013 due to heavy promotional activities and low demand for spring clothing. The retailer seems to be banking on the growth of a different brand, P.S. from Aeropostale, Inc. (NYSE:ARO) to save the flailing business. Unfortunately, a new brand cannot be grown overnight and Aeropostale, Inc. (NYSE:ARO) is in some serious trouble.  I am surprised Aeropostale’s price has not sunk more; a current P/E of 104 seems out of sorts.  Also, with a paltry ROE of 8.5, management is clearly making mistakes.

Danger Score: 5

This house is protected

The Under Armour Inc (NYSE:UA) brand has remained strong. Even during 2009, Under Armour Inc (NYSE:UA) was able to grow its customer base and earnings; that is saying something with the premium prices it charges for its brand. Under Armour Inc (NYSE:UA) apparel is now on the same level as NIKE, Inc. (NYSE:NKE), perhaps even higher. Another advantage, unlike with Aeropostale, Inc. (NYSE:ARO), is that Under Armour is worn by a variety of consumers; everyone from kids to adults sport the gear. The current P/E of 55 looks very high at first, but Under Armour has increased year-over-year revenue by at least 20% each quarter for the past three years. Under Armour Inc (NYSE:UA)‘s fantastic profit margin is not in danger as consumers will continue to pay a premium for the brand they desire. Under Armour Inc (NYSE:UA) practically doubles Aeropostale’s ROE, coming in at 16.2. CEO Kevin Plank recently stated sales are expected to double by 2016 — $1.8 billion to $4 billion — and there isn’t much reason to be a doubter.

Danger Score: 1

Growth flying away?

American Eagle Outfitters (NYSE:AEO) has had a tough time growing its business lately, with a lackluster projection of 4% EPS growth in 2013. The big question is, will this pick up? American Eagle Outfitters (NYSE:AEO) definitely believes so, predicting a 16% growth rate in 2014. The stock also looks attractive with a 2.5% yield, 16 P/E, and not debt — what’s not to like? When taking a closer look, investors can find an ugly payout ratio of 178. Unfortunately American Eagle Outfitters (NYSE:AEO) is currently paying out more to shareholders than it makes. Personally I wear American Eagle Outfitters (NYSE:AEO) products, along with my peers; it is seen as an acceptable brand for teenagers, but rarely do you find someone else wearing its products. With sales at stores open at least a year falling 5% in the first quarter of 2013, time will tell if projected growth will come through.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!