American Eagle Clothing May Take Flight

American Eagle ClothingPicking the right stocks in the retail sector is not always easy, but if you pick the right retailer at an opportune time, you could make some good money. I like the retail sector and feel there is a buying opportunity there. (Read “It’s a Screaming Buy for Retailers!”)

Youth retailer The Gap, Inc. (NYSE/GPS) was struggling in November 2002 and February 2009, when the stock traded just above $10.00, as shown on the price chart below. In 2002, The Gap was struggling to renew its growth, while in 2009, America had just gone through the subprime credit crisis that drove the country and the world into a recession.

In both circumstances, The Gap bounced back, and in hindsight, it was a buying opportunity. The Gap is currently trading near its 52-week high at over $35.00, up over 250% since 2009. The situation with The Gap is not limited to this company, as it has also happened with numerous other major retailers at one point. The key is to find the right buying opportunity.

GPS Gap Inc stock market chart

Chart courtesy of

A major retailer that is also hurting at this point is American Eagle Outfitters, Inc. (NYSE/AEO), which is oriented to the youth market.

For American Eagle, the competition is fierce with Abercrombie & Fitch Co. (NYSE/ANF) and The Gap; but like The Gap back in 2002, I feel American Eagle is a potential buying opportunity if it can grow its operations and deliver revenues and earnings to investors.

AEO American Eagle Outfitters, Inc stock chart

Chart courtesy of

American Eagle reported higher annual sales from FY05 to FY08, prior to a relapse in FY09 and FY10; but the stock rebounded with gains from FY11 to FY13.

Sales are estimated to rise 2.5% year-over-year to $3.6 billion in FY14 and 5.7% to $3.8 billion in FY15, according to Thomson Financial. The estimated sales growth in FY15 is above that of both The Gap and Abercrombie & Fitch.

In the fourth quarter, American Eagle reported record sales and an increase in its quarterly dividend, announcing a 20-million-share buyback program. I view the buyback as a positive insider signal and a buying opportunity to accumulate shares in American Eagle.

American Eagle’s balance sheet is strong and absent of debt. At the end of the fourth quarter, working capital was solid with $231.5 million, or $2.96 per share, in cash.

In addition, there’s also a short-covering buying opportunity with 7.6 million shares, or 11% of the float, of American Eagle shorted as of February 28. When the shares rise, watch for short-covering to surface, helping to drive up the share price.

The bottom line is: while American Eagle could take some time to drive up its growth, with its shares trading just above its 52-week low, there may be a buying opportunity for the aggressive speculator with some risk capital.

Note: any stocks mentioned in this article are not to be construed as a buy recommendation; rather, they are meant to be examples of a good buying opportunity.