Today, by my reckoning, Mr. Market has done gone kooky.
American Eagle Outfitters (NASDAQ:AEOS) is taking another trip to the woodshed, down something like 7% this morning.
What's the reason? There are two possibilities. First, the Street might be disappointed by its 11.8% same-store sales growth for August, or its 18.7% overall sales growth. As a shareholder, I have to say that this is just fine with me. It's in line with expectations, and it looks pretty healthy. It rates a yawn with me.
So perhaps it's because -- scary pipe-organ chord -- the CFO is leaving the company. Don't get me wrong; when a CFO jumps ship for something like a sudden urge to "spend more time with the family," that's a cause for worry. When the CFO leaves to take the COO position at Ann Taylor, as is the case here, that's an entirely different situation. And when the interim CFO is a 15-year finance veteran and CPA who was formerly the CFO at Limited Brands' (NYSE:LTD) Victoria's Secret, let's just say I think there's very little to worry about.
As of today, American Eagle is currently trading at a trailing P/E of 14. For that, you get a well-run retailer that's producing good free cash flow, paying a decent dividend (1.5% yield at these prices) and growing its bottom line to the tune of 27.7% over the past few years. Those results come from consistent lean operations. Consider that American Eagle's cash conversion cycle, at less than a month, is nearly twice as healthy as competitor Abercrombie & Fitch (NYSE:ANF), and is on par with giant, streamlined retailers like Target (NYSE:TGT) and Motley Fool Inside Value pick Home Depot (NYSE:HD).
To top it off, the company has $625 million in cash and no long-term debt. In other words, today, American Eagle looks priced for a degree of failure I don't believe is forthcoming. It's priced more cheaply than Aeropostale (NYSE:ARO) which, quite frankly, has much more to prove. Honestly, I'd love to buy more Eagle at this price. But unfortunately, I keep blabbing about the company, which means that I can't buy any more on account of our Foolish trading rules. I suggest that others take a hard look at the numbers and the recent sale price, and consider taking a bet on whether or not the Eagle will soar again.
For related Foolishness:
- Should you join the exodus or ignore the retail doomsayers?
- Aeropostale is carrying too much baggage.
- What's up with the class of teen retailing? Read our back-to-school duel.
Buying great companies when the market clips their wings -- that's the Motley Fool Inside Value philosophy. To get started finding stylish stocks at bargain-bin prices, sign up today for a free 30-day trial subscription.
Seth Jayson loves retail, though he never shops that way. At the time of publication, he had shares of Aeropostale and American Eagle. View his stock holdings and Fool profile here. Fool rules are here.
