Let me begin by saying I am not a fan of teen retailers. Historically, I have viewed both the stores and the stocks as things to avoid. Despite my aversion to waging bets on the fickle nature of the Clearasil crowd, I have found it hard to ignore a member of its ranks.

Aeropostale (NYSE:ARO) has successfully navigated a difficult retail sales environment, yet its stock is stuck in the bargain basement. The company has grown average annual sales by more than 16% for the last three years, while its average annual earnings have soared 30%. Over that same period, annual comparable store sales have been consistently positive.

Aeropostale has 945 stores, providing it more room to grow than rivals Abercrombie & Fitch (NYSE:ANF) and American Eagle Outfitters (NYSE:AEO), though admittedly less than The Buckle (NYSE:BKE), which has less than half as many stores. With no debt and a forward P/E multiple below 10, Aeropostale looks cheap, especially compared to weaker-performing peers. 

Company

Forward P/E

Sales Growth Year Ending Jan. 2010

Comps Growth Year Ending Jan. 2010

Locations

CAPS Rating (out of 5)

Aeropostale

9.2

18%

10%

945

***

Abercrombie & Fitch

20.0

-16%

-23%

1,130

*

American Eagle

15.0

0%

-4%

1,117

****

The Buckle

10.7

13%

8%

404

****

Source: Yahoo! Finance and company press releases.

Despite Aeropostale's success, I have concerns and have not yet made the plunge. 

Unlike Abercrombie & Fitch and American Eagle, Aeropostale will face tough year-over-year comparisons in 2010, and so ironically, the market could penalize the company for its standout 2009 performance. Aeropostale continued its streak of stellar comparable store sales in January 2010 with 6% growth, compared to 11% growth in January 2009. For the same period, Abercrombie & Fitch and American Eagle posted 8% and 10% comps, respectively, both aided by abysmal January 2009 sales that provided a very low hurdle.

During the recession Aeropostale benefited from price points for its merchandise that were lower than those at Abercrombie & Fitch. That pendulum can swing back during a recovery as newly moneyed consumers spend on upmarket clothes again. In addition to pricing, industry analysts believe that Abercrombie & Fitch has been hurt by missing trends. Unlike the staples you buy at Wal-Mart Stores (NYSE:WMT) or Costco (NASDAQ:COST), the merchandise at teen retailers can quickly switch from a fashion do to a fashion don't, meaning that operational outperformance (and underperformance) can change quickly.

Retiring Aeropostale CEO Julian Geiger has led the company since 1996, generating a shareholder return of 192% (vs. 15% for the S&P 500) since the company's May 2002 IPO. Co-CEOs Thomas Johnson and Mindy Meads will succeed Geiger. I always question the wisdom of Co-CEOs, rather than a single leader, because the strategic vision for the company can be diluted.

Despite these concerns, I think Aeropostale's valuation makes it worthy of consideration for Fools looking for a solid retailer. After all, its valuation suggests such concerns have already been priced in, minimizing downside risk.  

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