Brean Murray, Carret & Co. downgraded Aeropostale (NYSE: ARO ) today from hold to sell, citing a price target of $24 or a 20% discount from today's price of $30. Aeropostale, a mall-based teen retailer, competes against American Eagle Outfitters (Nasdaq: AEOS ) and Abercrombie & Fitch (NYSE: ANF ) in a volatile fashion industry where a company's valuation can run just as hot and cold as the fashion tastes of the teenagers to whom it sells. Therefore, a 20% discount from Aeropostale's current valuation comes as no surprise, and it could create a buying opportunity.
One person shopping at Aeropostale (not for its clothing, but for its stock) is Joel Greenblatt, partner of Gotham Asset Management and a successful value investor. Greenblatt created a buzz around Aeropostale when he disclosed purchasing 600,000 shares of the stock during the third quarter; he also recently discussed the company at an investor conference.
Investing success is often a game about being right, so I was curious what our own investment community thought of these divergent opinions between Brean Murray and Joel Greenblatt. The Motley Fool's CAPS stock rating service suggests that Joel Greenblatt has the edge. Of the 51 players who rate Aeropostale, 45 rate it to outperform. The wisdom of the crowd has spoken.
However, don't discount Brean Murray, whose own CAPS rating is in the top 10% of the community -- higher than most players who rated Aeropostale. (I'm ignoring Joel Greenblatt's rating, because it's tracking his popular "magic investing formula," not his actual investment fund.) Personally, I believe that Brean Murray and Joel Greenblatt could both be right, depending on your time horizon.
Brean Murray's $24 price target could easily be reached over the next few months, which would create buying opportunities for Joel Greenblatt -- if his Aeropostale investment thesis hasn't changed. The time frame makes all the difference, as Brean Murray's target only holds for the short term and Joel Greenblatt's investment horizon is much longer. This divergence of time frames, which has been labeled "time arbitrage" by noted value investor Bill Miller, often creates profitable buying opportunities in the stock market in general and the retail industry particularly.
Soooooo ... maybe Joel Greenblatt is on to something.
For related retail Foolishness:
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