Shares of apparel company American Eagle Outfitters (AEO -2.97%) were flying higher on Wednesday after scoring an upgrade from an analyst at Barclays. As of 12:15 p.m. EDT today, the stock was up 7%.
According to TheFly.com, Barclays analyst Adrienne Yih foresees a retail recovery next year. Furthermore, retail chains have improved e-commerce operations because of the pandemic, and strong inventory management at stores could improve profit margins. Because of this, Yih raised the target price for American Eagle stock to $18 per share.
American Eagle wasn't alone. Yih also mentioned Gap, Kontoor Brands, and Foot Locker as beneficiaries of an improving retail environment. But the upward move of American Eagle stock was particularly strong by comparison, perhaps because of its high short interest.
According to Yahoo Finance, short interest in the stock is almost 27%. That's very high and indicates a lot of investors are shorting it -- investors who apparently don't see things as Yih does. It's possible some of these short-sellers are now rethinking their conviction and exiting their positions, giving American Eagle stock a little bump higher.
For shareholders of American Eagle, an analyst upgrade is certainly a welcome development. But the upgrade is essentially based upon a belief that the company has already experienced a bad year, and next year will look comparatively better.
I won't argue the point. Indeed, one would surely hope American Eagle's 2021 results look better than they did during a global pandemic. But what's missing from the report is how the company can compound shareholder returns over the long haul, which should always be front and center in investors' minds.