Some notes about AEOS:
- It's been generous to the stockholders - it makes an increasing amount of earnings/share almost every year
- It's been profitable for as long as the eye can see - one thing I learned from Buffett, as simple as it may be, profits help increase a stock's value and losses don't.
- ROE 27.9%
- Book Value $6.38, price/book ratio is a bit high (around 4:1), but much less than Buffett's purchases in BUD.
- AEOS P/E Ratio is 13.6. S&P 500's P/E is 16.74. So we're more attractive than the S&P 500 as a whole. Plus, the S&P500 is attractive, which brings more bullishness to the marketplace. On average, AEOS usually runs in the 8-25 p/e range, so we're a little on the low (undervalued) side.
- No dividends, but they continue to buyback shares when appropriate.
- One of my friends works for AEOS. He has always been very positive on the upper management of AEOS, so high employee morale is a plus. During my last (six months ago) discussion with him, I told him of my recent (six months ago) purchase in PSUN (a competitor) because of valuation - it's a stock which I still hold. He was very aware of them and didn't say anything negative about them either. I'm up +17.74% with PSUN in less than six months. I don't know what he thinks of AEOS or PSUN today, but my intrinsic value estimation of AEOS was good enough to warrant today's purchase.
- Per finance.yahoo.com:
Profit Margin (ttm): 12.96%
Operating Margin (ttm): 20.73%
Return on Assets (ttm): 23.13%
Return on Equity (ttm): 31.06%
Qtrly Revenue Growth (yoy): 14.70%
Qtrly Earnings Growth (yoy): 26.30%
Total Cash (mrq): 556.38M
Total Cash Per Share (mrq): 3.58
Total Debt (mrq): 0
Total Debt/Equity (mrq): 0
Shares Outstanding: 155.39M
% Held by Insiders4: 14.11%
% Held by Institutions4: 80.50%
Shares Short (as of 11-Oct-05)3: 5.99M
Short Ratio (as of 11-Oct-05)3: 1.4
Short % of Float (as of 11-Oct-05)3: 4.20%
Shares Short (prior month)3: 5.08M
- Share Buyback Program
[biz.yahoo.com]
"American Eagle Expands Buyback Program
Thursday November 17, 2:40 pm ET
American Eagle Outfitters Board of Directors Approves Expansion of Its Repurchase Program
WARRENDALE, Pa. (AP) -- American Eagle Outfitters Inc. said Thursday that its board approved the expansion of its repurchase program by an additional 4.5 million shares, citing confidence in its earnings potential, growth prospects and financial position.
The apparel retailer said it completed the repurchase of 6 million shares in the third quarter under its buyback program.
American Eagle shares rose 6 cents to $23.56 in afternoon trading on the Nasdaq."
Ok, so not only did they complete a repurchase of 6 million shares (a sign of real profits), but they are also expanding their share repurchase program by 4.5 million shares, albeit 4.5 mil is not much compared to 155 mil, but it's a good strategic move, imo.
- This stock has taken a dip recently, but the stock's price is still better than it's 2-year long-term trend. This is a positive.
- Next year's earnings estimate is $1.94/share.
- One potential caveat is the market-as-a-whole. While the S&P 500's P/E ratios look favorable, we might be in the midst of a short-term market reversal. Look at this chart:
[www.quantinetics.com]
The S&P Index 1247.27 price was last Friday's closing price. The index has gone up to 1261.23 as of tonight, which puts us into that grey area where the market needs to do a pullback sometime.
I'm anticipating the market doing a reversal this upcoming Friday, but since the avg S&P P/E is only 16.74 and since no one can predict the future, it's anybody's guess. However, since the S&P 500 market has already risen +7.17% recently, it might be wise to take a break regardless.
I'm still doing research on Market Cycles (timing) even though the general consensus is that market timing doesn't work. Personally, I think otherwise.
- We're on the verge of the holiday shopping season. I'm betting on AEOS. While I hate gambling (eg. lottery tickets, casinos, etc.), I accept the fact that choosing a higher-probability performer over another, is considered a form of gambling.
- I've learned that if you're a mega-fashion retailer, like AEOS, GAP, ANF, PSUN, URBN, the public is more willing to allow you to recover from missteps (eg. a bad season, like when GAP got 40-something year old baggy-eyed Sarah Jessica Parker pushing clothes to 20-somethings) than if the company was a lesser-known brand name. In my opinion, there's a momentum behind successful fashion brand names.
- My initial entry price was $24.59 on November 22, 2005.
- My target price is $38/share for a +54.5% gain.
- The current price (as of 12/03/2005) is $20.93.
Now... can you say... "KABOOOM!" ?
May all your trades be profitable,
Vooch
