When retail investors get excited about a stock, that can send its shares soaring quickly. And sometimes it's an unexpected catalyst that sends a stock off to the races.
One stock that I'm watching closely right now because I believe it has the potential to skyrocket is American Eagle Outfitters (AEO -0.32%). As of the end of last week, the stock was down more than 25% since January. But with a popular ad campaign raising eyebrows and gaining the attention of the public, the stock has begun to rally, and there could potentially be much more upside in the future.
Not Sydney Sweeney. Image source: Getty Images.
American Eagle's Sydney Sweeney ad campaign has made the brand a hot topic
An ad campaign featuring a popular actress wearing a company's jeans may not seem controversial. But in 2025, it is. In recent years, companies have opted for more inclusive and diversified ad campaigns but American Eagle's new ad campaign featuring Sydney Sweeney this year is seemingly taking a different approach and going back to a more conventional strategy, featuring an attractive young white woman in its jeans.
The campaign says "Sydney Sweeney has great (American Eagle) jeans." People are seeing it as both a way to say the brand's jeans are great, and also that Sweeney -- who's been called a "blonde bombshell" -- has great genes. A social media post by President Donald Trump fanned the flames as it said partly that "Sydney Sweeney, a registered Republican, has the 'HOTTEST' ad out there. It's for American Eagle, and the jeans are 'flying off the shelves.' Go get 'em Sydney!"
The company itself said the campaign has "cheeky energy," and it's certainly created a debate around the direction the business is going in, and whether American Eagle may alienate existing customers. But at the same time, people are talking about the company like never before. It's attracting attention, and that may lead to an uptick in sales, which could be crucial in retail, at a time when consumers are struggling and cutting back on discretionary purchases.
A sales boost won't be evident for a while
American Eagle arguably needs to take a chance, as the company's sales have been lackluster. In its first-quarter results, for the period ending May 3, its net revenue came in just under $1.1 billion, which was a decline of around 5% from the prior-year period. And in its most recent fiscal year, which ended on Feb. 1, sales totaled $5.3 billion and were up just 1% year over year.
The Sydney Sweeney ad campaign began weeks ago, so the effects of that won't be factored into the company's recent results. Even when American Eagle reports its upcoming earnings numbers, which should come out within the next month or so, they won't have the effects of a full quarter of the ad campaign impacting sales just yet. And that means it may not be until later in the year when investors see how the campaign is paying off. But given its growing popularity, I'm optimistic it could prove to be a positive catalyst for the business.
Should you buy American Eagle stock today?
American Eagle stock closed Tuesday at $12.54 per share, higher than the less than $10 it was trading at just a few weeks earlier. The stock has been picking up steam of late, but it hasn't been scorching hot by any means. If, however, it delivers strong sales numbers due to the Sydney Sweeney campaign -- or any other reason -- this apparel stock may have a lot more upside. It's trading at 13 times its trailing earnings and is down 45% from its 52-week high of $22.83.
This is a compelling stock to watch. I see a lot of potential for it to rise higher. The company's business is profitable, it has a popular brand, and with a possible catalyst to drive its sales, the stock could soon become a much hotter buy. At a time when the market is seemingly flooded with overpriced stocks, American Eagle Outfitters is one that still looks cheap, and it may be an underrated buy right now.
