American Eagle Outfitters (AEO), Abercrombie & Fitch Co. (ANF), Aeropostale, Inc. (ARO): A Bargain Remains in the Apparel Business

All looks pretty good so far. Let’s see how the company stacks up to its competitors in this very competitive sector.

The Competition: Lots of It!

There is certainly no shortage of competition in this sector. A quick stock screen reveals 41 similarly sized apparel companies on the major exchanges. For the purposes of this comparison, let’s take a look at two companies with similar target customers and similar product pricing: Abercrombie & Fitch Co. (NYSE:ANF) and Aeropostale, Inc. (NYSE:ARO).

Abercrombie & Fitch Co. (NYSE:ANF) is of similar size and geographical breadth, and operates about 1000 stores of four brands, mostly Abercrombie & Fitch Co. (NYSE:ANF) and Hollister. The company targets the same age group as American Eagle, and also has a thriving kids business. Abercrombie & Fitch Co. (NYSE:ANF) trades at a slightly higher valuation of 18.4 times earnings, however with a higher 13% forward growth rate, so you could say the P/E relative to the projected growth is similar. However, what scares me away is Abercrombie & Fitch Co. (NYSE:ANF)’s somewhat unstable record of earnings (see chart)

Aeropostale, Inc. (NYSE:ARO) trades at the highest P/E of the three at 22.1 times TTM earnings with about 15% forward earnings growth projected. Aeropostale, Inc. (NYSE:ARO), or “aero” as it is known amongst its customers, caters primarily to the narrower 14-17 demographic and operates over 1,000 stores in the U.S. and Canada. Unlike the other two, the company pays no dividend, which is likely to scare off income seekers. I like Aero and think they will enjoy success for many years to come; they are just a bit too expensive right now.

Buy, Sell, Hold?

While a comparison with two of its competitors is by no means exhaustive, American Eagle does indeed seem to be a good value. As the economy continues to improve, discretionary spending will rise, and particularly the money that is given to young adults for the latest clothes. This past year, American Eagle produced its highest revenues ever, and the company should continue to surpass their past performance for several years to come. I feel completely confident calling American Eagle a great value in this ever-rising market.

The article A Bargain Remains in the Apparel Business originally appeared on and is written by Matthew Frankel.

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