Is It Time To Consider Buying Abercrombie & Fitch Co. (NYSE:ANF)?
Abercrombie & Fitch Co. (NYSE:ANF), is not the largest company out there, but it led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a mid-cap 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? Today I will analyse the most recent data on Abercrombie & Fitch’s outlook and valuation to see if the opportunity still exists.
View our latest analysis for Abercrombie & Fitch
What's the opportunity in Abercrombie & Fitch?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 7.85x is currently trading slightly below its industry peers’ ratio of 8.31x, 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 to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Abercrombie & Fitch’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Abercrombie & Fitch look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -20% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Abercrombie & Fitch. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? ANF seems priced close to industry peers 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 an eye on ANF for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This 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 crystallize your views on ANF should the price fluctuate below the industry PE ratio.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Abercrombie & Fitch (of which 1 is concerning!) you should know about.
If you are no longer interested in Abercrombie & Fitch, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
