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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 Aeropostale (NASDAQOTH: AROP ) were flying high today, climbing as much as 18%, after private equity firm Sycamore Partners took an 8% stake in the retailer.
So what: Private equity purchases generally don't move stocks to this degree, but investors seemed to believe that the move signaled a bottom in Aeropostale shares, which plummeted last month after a terrible earnings reprot. In its most recent quarter, comparable sales fell by 15%, and the teen retailer posted an adjusted loss of $0.34 per share, down from breakeven a year ago. Retail earnings don't get much worse than that. Sycamore has a history of taking struggling retailers private, and the spike in Aerpostale stock indicates that investors are hoping it will do the same in this case.
Now what: With its purchase, Sycamore becomes only the fourth-largest shareholder of Aeropostale, meaning it's far from a bygone conclusion that the company will go private, despite its activist reputation. Shares of Aeropostale were slashed nearly in half after its recent earnings report, but the company is no bargain as it appears to be in the middle of a structural decline. Fellow teen retailer American Eagle and Abercrombie & Fitch also posted horrendous quarters so it seems that there's a greater movement at play here as teen tastes shift to fast fashion sellers like H&M and Forever 21. If you're a believer in the buyout possibility, this may be a good opportunity, but otherwise I'd stay away.