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Is American Eagle Stock a Buy on This Dip?

Louis Navellier

American Eagle Outfitters Inc (NYSE: AEO) is a specialty retailer that focuses its main brands on the younger demographic of men and women. This teens to twenties space is pretty competitive, so it’s a testament to the company that it has been around and kicking since 1977. AEO stock was having a pretty good year in 2018, until Q4 hit and the stock, like the rest of the market started to sell off.

American Eagle (AEO) Stock Is Bucking the Retail Trend, but It’s Still Not a Buy

Source: Mike Mozart via Flickr (Modified) American Eagle stock is up about 2.5% in the past 12 months, not including its welcome 2.8% dividend yield.

That dividend doubles its 12-month performance, and AEO stock outpaced the major averages, so it isn’t exactly like the stock had a bad year relatively speaking. The problem, and the reason for the question in the headline is, AEO is not showing the wild reversal that many stocks have experienced since the new year began.

But AEO stock is a unique player in this space, given its dividend. The dividend says that this isn’t just a growth play on an established youth brand. American Eagle sees itself as a mature company that can offer both income and growth for its investors, and that is something that many of these specialty retailers don’t offer.

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And given that, AEO stock isn’t just a growth story, it’s about long-term investing in a company that has a long-term vision for its brands.

AEO Stock Is Innovating

For example, in January, American Eagle launched virtual fitting rooms in some of its stores. Basically, these allow customers to request sizes while they’re in the fitting room and also keep a running tab of the clothes you’re interested in purchasing.

This is a very interesting concept since trying on clothes can lead to frustration and lost sales. The same goes for having a real time tab of the clothes you want to purchase; and it saves time at the register since there’s no sticker shock.

This kind of thinking also serves AEO’s prime demographic, who value real-time assistance and will likely take to new technology quickly and easily.

Also in January, AEO announced that same store sales were up 6% for Q4 and analysts were expecting comp sales around 5%. The official Q4 earnings numbers will be out in early March but this is a good indication that the holiday season went well for AEO.

This month, AEO announced that it is licensing its body-positive women’s Aerie line as well as American Eagle in Europe. It hopes to add 50 to 80 new Aerie stores in all its markets. Same store sales for the brand were up 27% in Q2 last year.

AEO also just announced that its stepping into the rental game as well. This is growing trend where retailers provide a given number of items every month that are delivered to customers to wear for the month, for a set price. The goal is to get that fashion forward market that doesn’t have the interest or the financial wherewithal to buy new clothes on a regular basis. It also helps build brand loyalty.

Customers pay $49.95 a month to rent 3 items. If they want to keep them, they get a 25% discount. This could be huge.

My Portfolio Grader rates AEO stock a B right now, but if these initiatives gain traction, it could hit the A list quickly.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough StocksAccelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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