Nordstrom, Inc. (JWN), The Gap Inc. (GPS), American Eagle Outfitters (AEO): Is This Specialty Retailer a Fashionable Investment?

If you’re looking for a specialty retailer that has been down on its luck, and you want value, then you might be tempted to consider American Eagle Outfitters (NYSE:AEO) which is trading at just 13 times earnings. In the past, this would be a good option. Today, too many headwinds exist.

American Eagle Outfitters (NYSE:AEO) is a much smaller company than Nordstrom, with a market cap of $2.80 billion. This fact alone will make it less resilient to market corrections. Then you have declining teen apparel demand, which relates to teens finding it difficult to land a job and having little to no discretionary income.

On top of this, competition has been relentless in the space. This has led to high promotional activity and declining margins. Despite the risks associated with Nordstrom, it is still likely to be a better investment than American Eagle Outfitters (NYSE:AEO).

Also consider the stock market performances of these three stocks over the past five years. American Eagle Outfitters (NYSE:AEO) has performed poorly during a raging bull market — never a good sign.

JWN data by YCharts

Conclusion
Nordstrom, Inc. (NYSE:JWN) is a high-quality company, and it is likely to be a long-term winner. You could invest now, but you might be able to get it at a better price at some point over the next year or two, as the market seems to be running on confidence and greed more than anything else. Remember, the high-end consumer might suffer from any broader market setbacks. If you’re afraid of missing any upside potential, then you can scale in slowly and add to the position as the stock declines.

The article Is This Specialty Retailer a Fashionable Investment? originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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