Is American Eagle Flying A Little Too High Again?

When I last wrote about American Eagle (AEO), I noted the odd cyclicality of this apparel retailer - particularly the stock's "habit" of bottoming out every three years and then rallying. The shares have stuck with that pattern, rallying off summer 2017 lows and gaining more than 65% since the time of that last piece. Of course, there have been fundamental factors at play too, with American Eagle posting improved store comps and ongoing growth in its e-commerce business, as well as some signs of margin leverage.

It's harder for me now to make a bullish call on American Eagle. Core physical store-level comps are improving off a low base, but margin leverage is still challenging, and I'm not confident that the company can generate the sort of long-term revenue and margin momentum needed to make a compelling valuation argument on discounted cash flow. On the other hand, there seems to be momentum with the business now and the shares are not necessarily that pricey in the context of the company's ROIC.

Read more here:
Is American Eagle Flying A Little Too High Again?