When you look at NYSE:AEO, it's hard to ignore the strong fundamentals, especially considering its likely undervaluation.

Last update: Jan 23, 2024

Our stock screening tool has identified AMERICAN EAGLE OUTFITTERS (NYSE:AEO) as an undervalued gem with strong fundamentals. NYSE:AEO boasts decent financial health and profitability while maintaining an attractive price point. We'll break it down further.

Looking at the Valuation

An integral part of ChartMill's stock analysis is the Valuation Rating, which spans from 0 to 10. This rating evaluates diverse valuation factors, including price to earnings and cash flows, while considering the stock's profitability and growth. NYSE:AEO has received a 7 out of 10:

Based on the Price/Earnings ratio, AEO is valued a bit cheaper than 69.29% of the companies in the same industry.
The average S&P500 Price/Earnings ratio is at 25.97. AEO is valued slightly cheaper when compared to this.
Based on the Price/Forward Earnings ratio, AEO is valued a bit cheaper than 70.08% of the companies in the same industry.
When comparing the Price/Forward Earnings ratio of AEO to the average of the S&P500 Index (20.90), we can say AEO is valued slightly cheaper.
Based on the Enterprise Value to EBITDA ratio, AEO is valued a bit cheaper than 74.80% of the companies in the same industry.
Compared to the rest of the industry, the Price/Free Cash Flow ratio of AEO indicates a rather cheap valuation: AEO is cheaper than 87.40% of the companies listed in the same industry.
The low PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates a rather cheap valuation of the company.
The decent profitability rating of AEO may justify a higher PE ratio.
AEO's earnings are expected to grow with 17.36% in the coming years. This may justify a more expensive valuation.

Profitability Insights: NYSE:AEO

ChartMill assigns a proprietary Profitability Rating to each stock. The score is computed by evaluating various profitability ratios and margins and ranges from 0 to 10. NYSE:AEO was assigned a score of 6 for profitability:

The Return On Assets of AEO (6.20%) is better than 68.50% of its industry peers.
With a decent Return On Equity value of 12.56%, AEO is doing good in the industry, outperforming 67.72% of the companies in the same industry.
The Return On Invested Capital of AEO (8.92%) is better than 68.50% of its industry peers.
The 3 year average ROIC (7.49%) for AEO is below the current ROIC(8.92%), indicating increased profibility in the last year.
The Profit Margin of AEO (4.30%) is better than 70.08% of its industry peers.
The Operating Margin of AEO (6.51%) is better than 70.87% of its industry peers.

How do we evaluate the Health for NYSE:AEO?

ChartMill employs a unique Health Rating system for all stocks. This rating, ranging from 0 to 10, is determined by analyzing various liquidity and solvency ratios. For NYSE:AEO, the assigned 6 for health provides valuable insights:

AEO has an Altman-Z score of 4.17. This indicates that AEO is financially healthy and has little risk of bankruptcy at the moment.
Looking at the Altman-Z score, with a value of 4.17, AEO belongs to the top of the industry, outperforming 84.25% of the companies in the same industry.
There is no outstanding debt for AEO. This means it has a Debt/Equity and Debt/FCF ratio of 0 and it is amongst the best of the sector and industry.
With a decent Current ratio value of 1.63, AEO is doing good in the industry, outperforming 62.20% of the companies in the same industry.

Unpacking NYSE:AEO's Growth Rating

ChartMill assigns a Growth Rating to every stock. This score ranges from 0 to 10 and evaluates the different growth aspects like EPS and Revenue, both in the past as in the future. NYSE:AEO scores a 4 out of 10:

AEO shows a strong growth in Earnings Per Share. In the last year, the EPS has been growing by 31.96%, which is quite impressive.
Based on estimates for the next years, AEO will show a quite strong growth in Earnings Per Share. The EPS will grow by 17.36% on average per year.
The EPS growth rate is accelerating: in the next years the growth will be better than in the last years.

Our Decent Value screener lists more Decent Value stocks and is updated daily.

For an up to date full fundamental analysis you can check the fundamental report of AEO

Disclaimer

This is not investing advice! The article highlights some of the observations at the time of writing, but you should always make your own analysis and invest based on your own insights.