Stock Value Finder

American Eagle (AEO) is a clothing retailer that markets mainly to teens and college age individuals.

I actually already have purchased a position in AEO before doing my analysis. The reason for this is I live in Pittsburgh where AEO is headquartered, so I’m always reading about the company in the paper and keeping up with current company events. I also know people who have worked there, or are related to employees at AEO. Because of this I essentially already did some of my analysis on the background of the company.

I have always been impressed with AEO. What pushed me over the edge to purchase was the insider purchases recently. Usually with a company when insiders start buying they know the shares are undervalued and it’s time to pick them up cheap.

Debt

There is no debt on their books

Pros

American Eagle Outfitters has a strong brand and strong presense in teen culture. While building a strong brand in teen retailing isn’t impossible it doesn’t happen overnight. I consider AEO’s brand to be a competitive advantage.

$6.22/share in net current assets

Cons

While many teens would consider trendy clothing vital it unfortunatly isn’t the case.  Retail is subject to rising costs in oil, and the consumer credit crunch.  The outside risk factors could weigh on holiday sales, which is traditionally a strong time of the year for them.

Cash Flow

This is a little lower than I’d like.  AEO is not a cash flow rich company, and doesn’t appear that it ever has.   The current P/CF is 12.12 according to Morningstar.

Dividend Policy

There is currenly a $.40/share dividend which is approx 1.68% percent.

Current Share Details

As of 10/18/07 AEO closed at: $23.30

Disclaimer: I currently own a position in AEO 

This entry was posted on Friday, October 19th, 2007 at 2:49 am and is filed under investing, finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.