Urban Outfitters Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of retailer Urban Outfitters (Nasdaq: URBN  ) sank as much as 13% on Tuesday after its current-quarter guidance disappointed Wall Street.

So what: Urban Outfitters' second-quarter profit managed to top expectations, but disappointing sales in the first half of August indicate some strong short-term tailwinds. Investors seem particularly concerned that demand for its highest-priced brand, Anthropologie, will remain weak amid continued economic and political uncertainty.

Now what: I wouldn't be so quick to pounce on today's plunge. Teen fashion is notoriously fickle, but with a much higher price-to-sales ratio than rivals like bebe stores (Nasdaq: BEBE  ) and Gap (NYSE: GPS  ) , the shares seem extra-vulnerable to a consumer pullback. While Urban Outfitters is certainly worth following given its historically strong returns on equity and debtless balance sheet, I'd require a much bigger margin of safety before pulling the trigger.

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