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American Eagle Outfitters, Inc. (NYSE:AEO): Immense Growth Potential?

Simply Wall St

The most recent earnings update American Eagle Outfitters, Inc.’s (NYSE:AEO) released in February 2019 revealed that the business benefited from a strong tailwind, eventuating to a double-digit earnings growth of 28%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive American Eagle Outfitters’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.

See our latest analysis for American Eagle Outfitters

Analysts’ outlook for this coming year seems rather muted, with earnings growing by a single digit 8.2%. The growth outlook in the following year seems much more positive with rates arriving at double digit 17% compared to today’s earnings, and finally hitting US$317m by 2022.

NYSE:AEO Past and Future Earnings, March 16th 2019

Even though it’s helpful to understand the rate of growth each year relative to today’s figure, it may be more insightful to analyze the rate at which the company is rising or falling on average every year. The pro of this technique is that we can get a better picture of the direction of American Eagle Outfitters’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I’ve appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 5.3%. This means that, we can assume American Eagle Outfitters will grow its earnings by 5.3% every year for the next few years.

Next Steps:

For American Eagle Outfitters, I’ve put together three pertinent factors you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is AEO worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AEO is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AEO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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.