The Company designs, markets and sells its own brand of laidback, current clothing targeting 15 to 25 year-olds, providing high-quality merchandise at affordable prices.
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AEO generated $1.76/sh earnings and $2.38/sh in Free Cash Flow over the 12 months ended last February. They are sitting on about $3.75/sh in Cash and have zero debt. In fact, their balance sheet is extremely clean, with a very nice ratio of payables to receivables (they are apparently having no problem collecting!)Based on EPS, the PEG on this stock stands at .87 today, but the numbers are much better using Free Cash Flow. My DFC shows that the stock is about $10/sh below what it should be based on 15% annual growth over the next five years. Further, they could miss analysts' estimates by 50% and still merit the current price.Having said thata, they have grown at around 40% annually over the past five years, and I do not think the estimate of 15%/year is overly optimistic.They have also authourized a 23M share repurchase program, which would (if actually fulfilled) add to the value of the stock per-share.I am "re-upping" here, since I think the stock is selling at a significant discount below $30. IMHO, this stock should be trading at about $38.Original Post:FCF/Revenue of 33%, and the positive cash flow goes largely to the top line of the balance sheet. They have driven receivables down while driving sales up and keeping inventory under control all the while maintaining a net margin over 10%. Those are very good retail numbers. AEOS is doing what a company should do: making cash money. And they have put enough in the bank to weather the next storm. I don't know when denim is going out of style, but I'm betting it's not in the next year.
Things certainly went south since I picked this stock to beat the S&P, though it was doing well for a while. It's hard to find a strong stock in this space these days, and I suppose the economy is to blame for that. AEO's sales dropped slightly year-over year last year, and that trend continues in their latest quarterly. Still there are some rays of sunshine poking through the clouds. Their balance sheet remains very clean, and they're sitting on several hundred million dollars in cash with zero debt (they have double the cash of Aeropostale, for example). The Gross Margin went up slightly last year, though the net dipped. FCF/share improved almost 20% (it's about $1.48, up from $1.24). Finally, their FCF/Sales ratio is the best in the mall retailer space, as far as I can tell.
Obviously, I did not see the big downturn coming when I originally picked this stock to beat the S&P, but I think it's overly devalued here. I think it could definitely bounce back if the economy ever really recovers, and I think they're in a good position to whether another year if it doesn't.