American Eagle Outfitters (AEO), The Gap Inc. (GPS): Is a Plunge in This Apparel Retailer’s Stock a Good Opportunity?

Abercrombie & Fitch Co. (NYSE:ANF) has a similar valuation to American Eagle Outfitters (NYSE:AEO). It is trading at $51.70 per share, with the total market cap of around $4.1 billion. The market values the company at around 6 times its trailing EBITDA. Despite the lower sales in the first quarter 2013, Abercrombie & Fitch, has managed to narrow the loss, from a loss of $21.3 million last year to a loss of about $7.2 million, mainly due to the higher gross profit. For the full fiscal year 2013, Abercrombie & Fitch estimated that its comparable store sales would decline a bit, while its earnings per share could be around $3.15 to $3.25 per share.

Previously, Abercrombie & Fitch Co. (NYSE:ANF) has around 110 stores in Europe out of more than 140 international stores. Moreover, its European stores have experienced a declining comparable store sales due to the self-cannibalization. What makes me excited about Abercrombie & Fitch’s future growth is its investment slowdown in Europe and expansion into new international markets including Japan, Australia and UAE.

My Foolish take

After the significant drop, American Eagle Outfitters (NYSE:AEO) seems to be relatively cheap, compared to its peers. With relatively low valuation, growing e-commerce business and a decent dividend yield, American Eagle could be considered a good stock for retail investors now.

The article Is a Plunge in This Apparel Retailer’s Stock a Good Opportunity? originally appeared on Fool.com.

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