Editors' Pick: Originally published Dec. 30.

Fashion retailer Abercrombie & Fitch (ANF - Get Report) recently saw its share price surge after its third-quarter results smashed analysts' estimates. Unfortunately, that recent surge hasn't been enough to give the stock a positive performance for 2015. Shares are still down more than 3% so far this year. Worse still, Abercrombie & Fitch shares declined in each of the four previous years. 

ANF Chart

ANF data by YCharts

So, is Abercrombie among a group of highly dangerous stocks doomed to collapse, or is there a good chance it can turn itself around? What lies in store for the stock?

Abercrombie & Fitch recently appointed Fran Horowitz, who was president of its Hollister brand, to the newly created position of president and chief merchandising officer for the entire company. For now, the company has suspended its search for a new CEO. Horowitz may be just the executive to turn things around. Her resume includes experience at stores such as Express, Bloomingdale's, Bergdorf Goodman, Bonwit Teller and Saks Fifth Avenue.

And even before she took her new position, Abercrombie & Fitch seemed to be taking some savvy steps to deal with its slumping popularity among today's teens. This commentary at Seeking Alpha says that instead of using the obvious tactic of price-slashing to deal with dwindling sales, Abercrombie & Fitch -- which isn't as popular with teens as it once was -- has been reworking its brand to appeal to yesterday's teenagers. In other words, it's changing its clothing, image and shopping experience to appeal more to young adults. Part of this means toning down its once-ubiquitous logos.

If you look at peer Aeropostale (ARO) , which is facing similar challenges, it appears that Abercrombie & Fitch is doing a better job with its bottom line. Aeropostale, had adjusted losses per share of 56 cents, 56 cents and 31 cents, respectively, in its last three quarterly reports. But Abercrombie & Fitch went from an adjusted loss per share of 53 cents, adjusted earnings per share of 12 cents, and then adjusted EPS of 48 cents.

The fashion apparel store industry is going through a metamorphosis. Sales are slumping, even as online competition and deep discounting strategies are changing the way companies operate. Compared to even a year ago, larger chunks of the core demographic are hesitant to visit fashion stores. As customer preferences change, store traffic takes a beating.

The company's Hollister brand, after suffering a decline, is now expected to climb back into the light. The worry remains with the eponymous brand of Abercrombie & Fitch. If the company fails to catch up and evolve faster, its stock could slump.

Third-quarter results show comparable-store sales declining for the Abercrombie brand but rising 3% for the Hollister brand. If new merchandising chief Horowitz can apply some of the same techniques she used at Hollister to the Abercrombie brand, that could bode well for 2016.

The verdict: Abercrombie could turn itself around and resume a growth trajectory in 2016. Investors with a tolerance for risk may want to put some money into this retail stock.

Abercrombie & Fitch's stock is a compelling bargain right now. However, when a correction or terrorist attack hits in 2016, there's a group of stocks that will hit the skids and never recover. Click here for a free report that lists the dangerous stocks you should sell immediately.



This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.