Should Value Investors Buy American Eagle Outfitters (AEO) Stock?

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company to watch right now is American Eagle Outfitters (AEO). AEO is currently holding a Zacks Rank #2 (Buy) and a Value grade of A.

AEO is also sporting a PEG ratio of 0.84. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. AEO's PEG compares to its industry's average PEG of 0.89. Over the past 52 weeks, AEO's PEG has been as high as 1.05 and as low as 0.65, with a median of 0.89.

Another notable valuation metric for AEO is its P/B ratio of 2.12. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 5.80. Over the past year, AEO's P/B has been as high as 2.54 and as low as 1.05, with a median of 1.48.

Finally, investors should note that AEO has a P/CF ratio of 7.59. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. AEO's P/CF compares to its industry's average P/CF of 12.95. Over the past year, AEO's P/CF has been as high as 9.27 and as low as 3.36, with a median of 5.12.

If you're looking for another solid Retail - Apparel and Shoes value stock, take a look at Abercrombie & Fitch (ANF). ANF is a Zacks Rank of #2 (Buy) stock with a Value score of A.

Furthermore, Abercrombie & Fitch holds a P/B ratio of 3.31 and its industry's price-to-book ratio is 5.80. ANF's P/B has been as high as 6.85, as low as 2.50, with a median of 3.69 over the past 12 months.

These are only a few of the key metrics included in American Eagle Outfitters and Abercrombie & Fitch strong Value grade, but they help show that the stocks are likely undervalued right now. When factoring in the strength of its earnings outlook, AEO and ANF look like an impressive value stock at the moment.

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This article originally published on Zacks Investment Research (zacks.com).

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