Since I don't see anybody else waiting around to pat me on the back, I guess I'll just take care of it myself. OK, so maybe correctly predicting that Aeropostale (NYSE: ARO ) would not continue its torrid rise unabated doesn't put me in quite the same league as Nostradamus. After all, the stock price soared about 15% in just three months, so sensing that likely wouldn't continue hardly qualifies me as a market genius, but I'll take whatever I can get.
Do I think Aeropostale is going to be the next Wet Seal (Nasdaq: WTSLA ) , which is still fighting to resurface, or bebe (Nasdaq: BEBE ) , which continues to struggle to regain its form? I don't envision Aeropostale struggling quite to that extent, but I do see it taking investors for an up-and-down ride for a while.
Last week, Aeropostale reported sales figures for May that seem to indicate its inflated stock price is completely justified. Sales soared 19.3% to $88.1 million and comps increased by 1.9%. Frankly, I don't care about the sales growth. The number that matters to me is the comps growth, which compares sales at stores that were open in both time periods, and 1.9% growth doesn't get me shopping for Aeropostale stock. That's especially true when, in May of 2006, comps were down 1.1%, giving the company an easy comparison. Add to that the fact that the company reported comps that were lower by 14% last month, factor in the recent run-up in its stock price, and I think you'll start to see why investors finally caught on and sold the stock after the news.
I don't mean to sound so negative about Aeropostale. In fact, I think the stock will end up doing quite well over the long term. I just wouldn't touch it at its recent prices. We all know it's had strong earnings and sales growth lately, but that's just it; all that wonderful news is already fully accounted for in its stock price. Unless it easily tops estimates in its next earnings release, I don't see what would prompt investors to continue to pump up the stock price. And, thus far, they're not. Since closing the session at a high of just less than $47.50 on May 21, the stock has slipped almost 7.5%. While that still doesn't make it a bargain (it could be had for $40 at the beginning of May), it is a sign that investors are at least acting rationally.
I would watch this stock closely and hope investors overreact and push its share price too low. While I don't expect that to happen soon, it may drop a bit further, making it a more sensible purchase. Now, if only I could predict the bottom for Aeropostale, perhaps I would actually earn that pat on the back.
For the latest on the trendsetters of retail, check out:
bebe stores is a Stock Advisor recommendation. Try a 30-day free subscription to get the latest marketing beating picks from the Gardner brothers.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article. The Fool has a disclosure policy.
RSS Headlines
Fool UK