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Is Abercrombie & Fitch Co. (NYSE:ANF) Potentially Undervalued?

Simply Wall St

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Abercrombie & Fitch Co. (NYSE:ANF), which is in the specialty retail business, and is based in United States, saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at Abercrombie & Fitch’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Abercrombie & Fitch

Is Abercrombie & Fitch still cheap?

According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Abercrombie & Fitch’s ratio of 12.37x is trading slightly below its industry peers’ ratio of 15.4x, which means if you buy Abercrombie & Fitch today, you’d be paying a reasonable price for it. And if you believe Abercrombie & Fitch should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Furthermore, it seems like Abercrombie & Fitch’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Abercrombie & Fitch generate?

NYSE:ANF Past and Future Earnings, July 13th 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Abercrombie & Fitch, at least in the near future.

What this means for you:

Are you a shareholder? ANF seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ANF, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on ANF for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on ANF should the price fluctuate below its true value.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Abercrombie & Fitch. You can find everything you need to know about Abercrombie & Fitch in the latest infographic research report. If you are no longer interested in Abercrombie & Fitch, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.