U.S. Markets closed

Did American Eagle Outfitters's (NYSE:AEO) Share Price Deserve to Gain 86%?

Simply Wall St

American Eagle Outfitters, Inc. (NYSE:AEO) shareholders might be concerned after seeing the share price drop 11% in the last week. But that doesn't change the fact that the returns over the last five years have been pleasing. Its return of 86% has certainly bested the market return!

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

See our latest analysis for American Eagle Outfitters

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, American Eagle Outfitters achieved compound earnings per share (EPS) growth of 28% per year. This EPS growth is higher than the 13% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NYSE:AEO Past and Future Earnings, May 17th 2019

We know that American Eagle Outfitters has improved its bottom line lately, but is it going to grow revenue? Check if analysts think American Eagle Outfitters will grow revenue in the future.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for American Eagle Outfitters the TSR over the last 5 years was 117%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 5.2% in the last year, American Eagle Outfitters shareholders lost 11% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 17%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

We will like American Eagle Outfitters better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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.