Should You Buy It? Abercrombie & Fitch

Two weeks ago in the Value Investor newsletter, young adult retailer Abercrombie & Fitch (ANF - commentary - Cramer's Take) came up in a screen for stocks that trade below tangible book value, have more cash than debt and generate a steady profit.

Since receiving an analyst upgrade Nov. 25 from Cowen & Co., the stock is up 22%, closing Wednesday at $21.22. In fact, the shares are up a quick 55% from its intraday low Nov. 21.

With that in mind, I'm here to answer readers' questions: Should you buy it? Does Abercrombie still hold value at current levels, or has the stock run too far too fast?

Abercrombie operates more than 1,000 stores in the U.S. under its flagship store and the Hollister brand. And while teen and young adult sales were once a fast-growing apparel demographic, the company has much higher price points than competitors like Aeropostale (ARO - commentary - Cramer's Take) and American Eagle Outfitters (AEO - commentary - Cramer's Take), though management has yet to try and entice shoppers with discounts.

As a result, sales have fallen off a cliff in the midst of the economic slowdown. Just last Thursday, Abercrombie posted a disappointing same-store sales decline of 28%, even worse than the 25.4% drop that was expected.

That follows a mixed quarterly report a few weeks before that. On Nov. 14, Abercrombie slashed its fiscal fourth-quarter (ending January) profit expectations to $1.00-$1.05 a share from the previous consensus analyst estimate of $1.57.

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David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback; click here to send him an email.

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