In this article we will look at the 11 Best Fashion Stocks To Buy Now. Let’s look at where American Eagle Outfitters, Inc. (AEO) stands against other best fashion stocks to buy now.
Overview of the Global Fashion Industry
The global fashion industry is a force to reckon with as one of the largest industries across the globe. The global fashion retail market was worth $91.25 billion in 2023, as per a report by Zion Market Research. This market is anticipated to grow to $157.88 billion by 2032, at a compound annual growth rate of around 7.09% between 2024 and 2032.
According to the McKinsey report on The State of Fashion 2024, the fashion market in the US and Europe experienced slow growth in 2023. In comparison, China’s fashion market performed better in the first half of 2023 before gradually waning in the second half. The luxury segment, however, underwent considerable growth in the first half of 2024. But it, too, began to experience the effects of weaker demand in the second half of 2023.
According to McKinsey’s forecast, the global fashion industry is expected to undergo a top-line growth of between 2% and 4% in 2024. The luxury segment has a more optimistic outlook, with growth expectations reaching 3% to 5% globally.
However, with inflation consistently falling, the global fashion industry is expected to exceed expert estimates and make a solid comeback. The Federal Reserve also cut interest rates in September, its first cut since the COVID-19 pandemic, slashing half a percentage point off benchmark rates. These recent happenings are expected to positively impact the global fashion industry in general and the US fashion segment in particular, due to a potential increase in consumer spending.
The Global Fashion Industry: Potential Challenges and Future Outlook
However, despite the apparently optimistic landscape, the fashion industry is not immune to challenges. According to a survey by McKinsey & Company, 62% of executives cite geopolitical instability as the most prominent threat to fashion industry growth. In addition, around 55% of executives believe economic volatility is the largest hindrance to increased revenue. 51% consider inflation to be the primary cause behind this roadblock.
Expert opinion on the industry’s future outlook is also divided. While 37% of respondents believe the sector will likely stay the same, 38% expressed a pessimistic outlook, claiming that the industry will worsen with time. In contrast, 26% expressed hope and optimism, believing that the global fashion industry will likely come back. The survey also concluded that since cost-saving tactics across the industry have almost been exhausted, a more than 50% intent of raising prices stands.
Our Methodology
We first consulted stock screeners from Finviz and Yahoo Finance, along with online rankings, to create an initial list of 30 publicly traded fashion companies. From this list, we selected the 11 stocks with the highest number of hedge funds as of Q2 2024 and used that as our ranking metric.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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American Eagle Outfitters, Inc. (NYSE:AEO)
American Eagle Outfitters (NYSE:AEO) is a global fashion retailer that offers clothing, accessories, and personal care products under two segments: American Eagle and Aerie brands. American Eagle is an American apparel and jeans brand, while Aerie is a lifestyle brand that offers apparel, intimates, activewear, and swim collections. Aerie also operates OFFLINE, which sells a complete collection of activewear and accessories.
American Eagle Outfitters (NYSE:AEO) sells its merchandise directly to consumers through its retail channel, including corporate-operated stores and concession-based shops within shops. It operates stores in Canada, the United States, Mexico, and Hong Kong. It also holds license agreements with third parties to operate American Eagle and Aerie in-store and online in marketplace businesses across the globe, including Asia (including India), Europe, Latin America, and the Middle East. In addition, the company also operates Todd Snyder New York, a premium menswear brand.
The company is experiencing strong growth and profitability across its key performance metrics. In Q2 2024, it delivered its sixth consecutive quarter of record revenue while also experiencing substantial growth in operating income. When considered with solid Q1 results, its Q2 2024 results highlight a profitable first half of 2024. American Eagle Outfitters’ (NYSE:AEO) consistent progress across strategic priorities aligns with its multi-year plan.
Overall, the company is working on three pillars: amplification of its brands, optimization of its operations, and execution of financial discipline. Focus on these pillars is returning strong financials to the company. Revenue for Q2 reached $1.3 billion, making a new record. It is also growing its market share and gaining momentum along with a number of its focus categories. It has applied its new lived-in store design to around 30 locations, with positive results flowing in from each. The better performance of the remodeled stores shows that the company’s strategies are working.
Overall, AEO ranks eleventh among the best fashion stocks to buy now. While we acknowledge the potential of fashion companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AEO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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