Almost a year ago, I recommended buying Aeropostale
Last week, the picture worsened. Aeropostale announced that its second-quarter revenue dropped 5%, and its same-store sales plunged 14%. The company also took a machete to its guidance: It now expects second-quarter earnings of $0.02 to $0.03 per share. Aeropostale had previously anticipated earnings of $0.11 to $0.16 per share.
Some of the current pessimism relates to Aeropostale's tough comparisons. In the years ended January 2009 and January 2010, it grew total sales by 18.5% and 18.3%, and generated impressive EPS growth of 27.8% and 54.4%, respectively. That kind of performance in such a tough climate was the exception to the rule in retail.
I wasn't surprised that Aeropostale held up so well in difficult times. It sells trendy clothing to teens at lower prices than many competitors such as Abercrombie & Fitch
The company faces plenty of competition for teen clothing dollars. Long-beleaguered American Eagle Outfitters
At this point, Aeropostale's shares look insanely cheap. The stock's trading at less than 7 times forward earnings, and its PEG ratio is just 0.69. However, investors must carefully weigh the risks here. If Aeropostale's losing advantage with teen shoppers, and needs a serious turnaround, its stock could stay grounded for quite some time.