Is There Now An Opportunity In American Eagle Outfitters, Inc. (NYSE:AEO)?

American Eagle Outfitters, Inc. (NYSE:AEO), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$26.20 at one point, and dropping to the lows of US$21.90. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether American Eagle Outfitters' current trading price of US$23.91 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at American Eagle Outfitters’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for American Eagle Outfitters

What's The Opportunity In American Eagle Outfitters?

American Eagle Outfitters is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that American Eagle Outfitters’s ratio of 27.62x is above its peer average of 15.24x, which suggests the stock is trading at a higher price compared to the Specialty Retail industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since American Eagle Outfitters’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will American Eagle Outfitters generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. In American Eagle Outfitters' case, its earnings over the next year are expected to double, indicating an incredibly optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in AEO’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe AEO should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on AEO for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for AEO, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into American Eagle Outfitters, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for American Eagle Outfitters you should be aware of.

If you are no longer interested in American Eagle Outfitters, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.