Domino’s Pizza, Inc. (DPZ), Aeropostale, Inc. (ARO), American Eagle Outfitters (AEO), True Religion Apparel, Inc. (TRLG): Wednesday’s Top Upgrades (and Downgrades)

The stock’s also growing slower than AE (10%, projected), and to top it all off, Aeropostale, Inc. (NYSE:ARO) pays no dividend. If you ask me, that makes the stock not just a worse prospect for buying than AE is — it comes darn close to an argument for selling Aeropostale, Inc. (NYSE:ARO) shares outright.

Domino’s Pizza doesn’t taste good
A second stock getting whacked by the Wall Street ugly stick today is Domino’s Pizza, Inc. (NYSE:DPZ) — although this time, it’s not Standpoint doing the downgrading. Rather, Miller Tabak is blowing the whistle on Domino’s Pizza, Inc. (NYSE:DPZ)’s 85% stock-price surge, and urging investors to take a time out… and take their winnings off the table.

Again, I agree that there’s no time like the present to do this. Here at the apex of their run, Domino’s Pizza, Inc. (NYSE:DPZ) shares cost a heady 27 times trailing earnings, which seems like a lot to pay for a projected 14% long-term grower like Domino’s Pizza, Inc. (NYSE:DPZ). The dividend yield, 1.4%, makes up some of the difference between P/E and growth rate. Also, Domino’s Pizza, Inc. (NYSE:DPZ) is a strong free cash flow generator, bringing in 37% more cash profit over the past year than it reported as GAAP net income.

That’s enough to get the stock’s P/FCF ratio down to about 19 — but to my Foolish eye, even with the dividend, and even with the robust free cash flows, this stock still looks significantly overpriced. I think Miller’s advice to pare back your position is sound. And again, as with Aeropostale, I’d suggest that conservative, value-focused investors might want to go ahead and sell out — maybe invest the proceeds in a bona fide value like American Eagle Outfitters (NYSE:AEO) instead.

Because — yes — I think AE stock is just that good.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Wednesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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