What happened

Shares of American Eagle Outfitters (NYSE:AEO) pulled back last year as the teen apparel retailer posted sluggish profit growth through the fiscal year and tariff fears drove investors away. According to data from S&P Global Market Intelligence, the stock finished the year down 24%.

As the chart below shows, the stock dove in May on tariff woes and continued to slide from there, as the market was unimpressed with the company's quarterly results and wary of a trade war with China.

AEO Chart

AEO data by YCharts.

So what

American Eagle shares actually rose through the first four months of the year, though there was little fundamental reason for the stock's gains. Instead, the broader market recovery seemed to help lift the stock.

An American Eagle storefront.

Image source: American Eagle.

However, that all unraveled in May as retail stocks dove broadly on concerns about tariffs, with the SPDR S&P Retail ETF falling 12% that month and American Eagle itself plunging 27% even though there was no direct news out on the stock. Retail stocks flailed as President Trump suggested on Twitter that he would raise tariffs on some Chinese imports from 10% to 25% and that he would impose import taxes on a new subset of Chinese goods. Like other apparel retailers, American Eagle is dependent on China for manufacturing and has acknowledged increased tariffs as one of its risk factors. Through the rest of the year, tariff threats continued to menace the stock.  

A solid first-quarter earnings report out in June was not enough to stem the tide as shares slipped through the summer and then momentarily plunged on American Eagle's second-quarter earnings report in early September. Comparable sales growth in the period slipped to 2%, falling by 1% at the company's core American Eagle brand. However, investors seemed to believe the sell-off was a buying opportunity, as the stock rebounded the next day. The stock slipped again on its third-quarter earnings report in December as earnings per share was flat from the year before.

Now what

Following last year's sell-off, American Eagle shares look reasonably cheap at a P/E around 10, but teen apparel retail has long been a difficult, fickle industry. The company has found success with Aerie, its lingerie-focused sub-brand, but performance at its core chain has been more mixed. With the trade war with China seemingly easing and the economy still strong, 2020 could be a kinder year for American Eagle stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.