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Aeropostale Inc. Stock Downgraded (ARO)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- Aeropostale (NYSE: ARO) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and poor profit margins.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:

  • AEROPOSTALE INC's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, AEROPOSTALE INC reported lower earnings of $0.43 versus $0.86 in the prior year. For the next year, the market is expecting a contraction of 268.6% in earnings (-$0.73 versus $0.43).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 47612.7% when compared to the same quarter one year ago, falling from $0.07 million to -$33.73 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, AEROPOSTALE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for AEROPOSTALE INC is rather low; currently it is at 17.88%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -7.42% is significantly below that of the industry average.
  • This stock's share value has moved by only 42.50% over the past year. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

2011 comments: Aeropostale (the "Company") is a mall-based specialty retailer of casual apparel and accessories. As of October 30, 2010, the company operated 958 Aeropostale stores, consisting of 904 stores in 49 states and Puerto Rico and 54 stores in Canada. Aeropostale has a market cap of $661.5 million and is part of the services sector and retail industry. Shares are down 35.2% year to date as of the close of trading on Wednesday.

You can view the full Aeropostale Ratings Report or get investment ideas from our investment research center.

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