Today's Dead Cat Bounce Stock: 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 "dead cat bounce" (down big yesterday but up big today) 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 $74.3 million.
  • AEO has traded 5.4 million shares today.
  • AEO is up 3.4% today.
  • AEO was down 13.8% yesterday.

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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 3.5%. AEO has a PE ratio of 59.8. Currently there are 5 analysts that rate American Eagle Outfitters a buy, 3 analysts rate it a sell, and 12 rate it a hold.

The average volume for American Eagle Outfitters has been 5.4 million shares per day over the past 30 days. American Eagle Outfitters has a market cap of $2.8 billion and is part of the services sector and retail industry. The stock has a beta of 1.14 and a short float of 17.8% with 5.41 days to cover. Shares are down 4.1% year-to-date as of the close of trading on Thursday.

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

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates American Eagle Outfitters as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins 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:
  • 36.93% is the gross profit margin for AMERN EAGLE OUTFITTERS INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.05% trails the industry average.
  • 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. Despite the fact that AEO's debt-to-equity ratio is low, the quick ratio, which is currently 0.62, displays a potential problem in covering short-term cash needs.
  • AEO, with its decline in revenue, slightly underperformed the industry average of 8.9%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The share price of AMERN EAGLE OUTFITTERS INC has not done very well: it is down 14.39% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • 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, AMERN EAGLE OUTFITTERS INC's return on equity significantly trails that of both the industry average and the S&P 500.

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

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