Storm The Castle Stock Of The Day: American Eagle Outfitters (AEO)

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.

Trade-Ideas LLC identified American Eagle Outfitters ( AEO) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified American Eagle Outfitters as such a stock due to the following factors:

  • AEO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $66.5 million.
  • AEO has traded 14.7 million shares today.
  • AEO is trading at 11.09 times the normal volume for the stock at this time of day.
  • AEO crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on AEO:

American Eagle Outfitters, Inc. operates as a specialty retailer of clothing, accessories, and personal care products in the United States and internationally. The stock currently has a dividend yield of 4.5%. AEO has a PE ratio of 35.9. Currently there are 5 analysts that rate American Eagle Outfitters a buy, 2 analysts rate it a sell, and 13 rate it a hold.

The average volume for American Eagle Outfitters has been 4.2 million shares per day over the past 30 days. American Eagle Outfitters has a market cap of $2.2 billion and is part of the services sector and retail industry. The stock has a beta of 0.84 and a short float of 14.8% with 6.33 days to cover. Shares are down 19.5% year-to-date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. Analysis:

TheStreet Quant Ratings rates American Eagle Outfitters as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:

  • Net operating cash flow has significantly increased by 88.77% to -$4.34 million when compared to the same quarter last year. In addition, AMERN EAGLE OUTFITTERS INC has also vastly surpassed the industry average cash flow growth rate of -5.57%.
  • AEO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 1.00 is somewhat weak and could be cause for future problems.
  • AEO, with its decline in revenue, slightly underperformed the industry average of 0.3%. Since the same quarter one year prior, revenues slightly dropped by 4.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 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. In comparison to the other companies in the Specialty Retail industry and the overall market, AMERN EAGLE OUTFITTERS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • The gross profit margin for AMERN EAGLE OUTFITTERS INC is currently lower than what is desirable, coming in at 34.95%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.59% trails that of the industry average.


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