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Why Aeropostale, Inc. Might Be Poised to Bounce Back

By Brian Pacampara – Jan 29, 2014 at 10:02AM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Aeropostale (AROPQ) climbed 1% this morning after Goldman Sachs upgraded the teen-oriented apparel retailer from sell to neutral.

So what: Along with the upgrade, analyst Lindsay Drucker Mann reiterated her price target of $7, representing about 2.5% worth of downside to yesterday's close. While Mann isn't exactly bullish about Aeropostale's top- and bottom-line growth prospects, she thinks that much of the negative outlook is already baked into the valuation.

Now what: According to Goldman, Aeropostale's risk/reward trade-off is pretty balanced at this point. "There is no change to our concerns about ARO's fundamental outlook; specifically, we expect persistent competitive pressure to weigh on market share and margins, and also foresee very limited customer adoption of ARO's new 'fashion forward' in the near term," noted Drucker Mann. "Recent share price underperformance suggests that our fundamental concerns along with the low probability we assign to activist-related value creation are now broadly consistent with the consensus." With Aeropostale off about 60% from its 52-week highs and trading at a paltry price-to-sales of 0.3, it's tough to disagree with Goldman's conclusion. 

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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