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

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.

How do we evaluate the Valuation for NYSE:AEO?

ChartMill employs its own Valuation Rating system for all stocks. This score, ranging from 0 to 10, is determined by evaluating different valuation factors, including price to earnings and free cash flow, both in absolute terms and relative to the market and industry. NYSE:AEO has earned a 9 for valuation:

• AEO is valuated reasonably with a Price/Earnings ratio of 11.22.
• AEO's Price/Earnings ratio is rather cheap when compared to the industry. AEO is cheaper than 90.16% of the companies in the same industry.
• The average S&P500 Price/Earnings ratio is at 29.59. AEO is valued rather cheaply when compared to this.
• The Price/Forward Earnings ratio is 10.53, which indicates a very decent valuation of AEO.
• Based on the Price/Forward Earnings ratio, AEO is valued cheaply inside the industry as 86.07% of the companies are valued more expensively.
• AEO's Price/Forward Earnings ratio indicates a rather cheap valuation when compared to the S&P500 average which is at 24.06.
• Compared to the rest of the industry, the Enterprise Value to EBITDA ratio of AEO indicates a rather cheap valuation: AEO is cheaper than 87.70% of the companies listed 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 80.33% of the companies listed in the same industry.
• AEO's low PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates a rather cheap valuation of the company.
• AEO has a very decent profitability rating, which may justify a higher PE ratio.
• AEO's earnings are expected to grow with 12.07% in the coming years. This may justify a more expensive valuation.

Analyzing Profitability Metrics

ChartMill employs its own Profitability Rating system for stock evaluation. This score, ranging from 0 to 10, is derived from an analysis of diverse profitability metrics and margins. In the case of NYSE:AEO, the assigned 6 is noteworthy for profitability:

• With a decent Return On Assets value of 7.01%, AEO is doing good in the industry, outperforming 77.05% of the companies in the same industry.
• With a decent Return On Equity value of 14.64%, AEO is doing good in the industry, outperforming 73.77% of the companies in the same industry.
• AEO has a Return On Invested Capital of 11.14%. This is in the better half of the industry: AEO outperforms 77.87% of its industry peers.
• The last Return On Invested Capital (11.14%) for AEO is above the 3 year average (10.41%), which is a sign of increasing profitability.
• The Profit Margin of AEO (4.58%) is better than 77.05% of its industry peers.
• AEO has a Operating Margin of 8.01%. This is amongst the best in the industry. AEO outperforms 81.15% of its industry peers.

Health Assessment of NYSE:AEO

ChartMill utilizes a Health Rating to assess stocks, scoring them on a scale of 0 to 10. This rating takes into account a variety of liquidity and solvency ratios, both in absolute terms and in comparison to industry peers. NYSE:AEO has earned a 7 out of 10:

• AEO has an Altman-Z score of 4.29. 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 4.29, AEO belongs to the top of the industry, outperforming 85.25% of the companies in the same industry.
• AEO has no outstanding debt. Therefor its Debt/Equity and Debt/FCF ratios are 0 and belong to the best of the industry.
• Looking at the Current ratio, with a value of 1.57, AEO is in the better half of the industry, outperforming 62.30% of the companies in the same industry.
• The Quick ratio of AEO (0.74) is better than 64.75% of its industry peers.

How We Gauge Growth for NYSE:AEO

ChartMill assigns a proprietary Growth Rating to each stock. The score is computed by evaluating various growth aspects, like EPS and revenue growth. We take into account the history as well as the estimated future numbers. NYSE:AEO was assigned a score of 5 for growth:

• The Earnings Per Share has grown by an impressive 51.24% over the past year.
• AEO is expected to show quite a strong growth in Earnings Per Share. In the coming years, the EPS will grow by 12.07% yearly.
• 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.

Our latest full fundamental report of AEO contains the most current fundamental analsysis.

Keep in mind

Important Note: The content of this article is not intended as trading advice. It is essential to perform your own analysis and exercise caution when making trading decisions. The article presents observations created by automated analysis but does not guarantee any trading or investment outcomes. Always trade responsibly and make independent judgments.