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I was looking through the list of top % gainers on the NYSE this afternoon and came across an 'old favorite' of mine acting quite well, in fact closing at $27.85, up $1.69 or 6.46% on the day. I do not own any shares nor do I have any options on this stock.
I say 'old friend' because this will be the third time that this Aeropostale has come to this blog's attention. I first posted ARO on Stock Picks Bob's Advice on September 15, 2003 when the stock was trading at $27.25. Adjusted for two 3:2 stock splits (April, 2004, and August, 2007), this works out to a pick price of $27.25 x 2/3 x 2/3 = $12.11. Thus, with the stock at $27.85, this represents an appreciation of $15.74 or 130% since posting.
One year ago, on April 3, 2007, I 'revisited' Aeropostale when the stock was trading at $42.06, which adjusted for the August, 2007, 3:2 stock split works out to a price of $28.04. Thus, since the post a year ago the stock has actually dipped a few cents to the current closing stock price of $27.85.
Let me share with you my observation on this stock as it is today and why
AEROPOSTALE (ARO) IS RATED A HOLD
What exactly do they do?
According to the Yahoo "Profile" on Aeropostale (ARO), the company
"...designs, markets, and sells its own brand of merchandise principally targeting 14 to 17 year-old women and men, as well as provides lifestyle-oriented brands targeting 18 to 25 year-old women and men. It offers a collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear, and accessories."
Is there any news on this stock?
Today is the first Thursday of the month. "What's so special about that?"...I can almost hear you asking. Well that is the day that the retailers announce their 'same store sales figures'.
Today a lot of retailers announced their figures on same-store sales. Many of the numbers were strikingly negative! Major retailers like Gap (GPS) announced negative (18)% comparables, Chicos (CHS) came in with a negative (20.7)%! American Eagle (AEO) figures dipped (12)%. Thus when Aeropostale (ARO) came in with a positive 2.5%, this was big news. Especially relative to the performance of many of the other specialty retailers. And the market rallied behind the stock.
What about the latest quarterly report?
On March 13, 2008, Aeropostale (ARO) posted 4th quarter 2007 results. Total net sales for the fourth quarter increased 16.7% to $591.3 million from $506.8 million in the same quarter in 2006. Same store sales for the quarter came in at a positive 9.2% over the prior year.
Net income for the quarter was $64.7 million or $.95/diluted share. Excluding special items, earnings for the quarter were actually $63.0 million or $.93/diluted share. This compares to $57.3 million or $.72/diluted share the prior year same period.
The company beat expectations on earnings as indicated by analysts polled by Thomson Financial who had expected net income of $.88/share. They also beat expectations on revenue coming in at $591.3 million while analysts had been expecting revenue of $584.5 million.
How about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials on Aeropostale (ARO) we can see that revenue growth is continuing to steadily improve from $700 million in 2004 to $1.6 billion in 2008. Earnings have likewise steadily increased from $.62/share in 2004 to $1.73/share in 2008. Outstanding shares are not only stable but have actually decreased from 87 million in 2004 to 75 million in 2008.
Free cash flow has been solidly positive if not steadily increasing with $86 million in 2006 and $89 million in free cash flow in 2008.
The balance sheet is adequate with $112 million in cash and $173 million in other current assets. This total of $285 million in current assets, when compared to the $197.4 million in current liabilities yields a current ratio of 1.44...an adequate ratio imho.
What about some valuation numbers?
The trailing p/e is reasonable imho at 16.14, and the forward p/e (fye 02-Feb-10) is estimated at 12.32, yielding a terrific PEG of 0.76.
According to the Fidelity.com eresearch website, the Price/Sales (TTM) ratio of 1.23 is a bit rich relative to the ratio of 0.84 which is the industry average. On a more positive note, Fidelity also reports that the Return on Equity (TTM) for ARO of 46.28% is significantly higher than the profitability figure of 23.29% reported to be the 'industry average'.
Returning to Yahoo, there are currently 66.74 million shares outstanding with 65.36 million that float. As of 3/11/08, there were 9.6 million shares reported out short representing 4.2 trading days of volume (the short ratio), or 14.6% of the float. This is a bit higher than my own '3 day rule' for short interest, but does not represent much of a 'squeeze' potential.
No dividend is reported by Yahoo, and as I already noted, the stock last split with a 3:2 stock split reported on August 22, 2007.
What does the chart look like?
Reviewing the 'point & figure' chart on Aeropostale (ARO) from StockCharts.com, we can see that since the price dipped to a $2.50 level in October, 2002, the price has actually fairly steadily appreciated to the recent high of $31 in May, 2007, not much higher than the current price of $27.85.
Summary: What do I think?
Well, I really like this stock. The valuation is reasonable with a p/e in the teens and a PEG well under 1.0. The Price/Sales is a tad steep but the return on equity is solid. The latest quarter was great and the last five years have shown steady growth with the company actually reducing its shares outstanding.
On a negative note, the entire retail environment is guarded with the economy seemingly heading into recession. Aeropostale did relatively well and is continuing to show growth, if rather reduced down to the low single digits.
With all of this in mind, the best I could do is to rate the stock a "hold".
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Wishing you all a wonderful Friday and a great week ahead!
Yours in investing,