What a brutal six months it’s been for Abercrombie and Fitch. The stock has dropped 21.4% and now trades at $75.47, rattling many shareholders. This may have investors wondering how to approach the situation.
Following the pullback, is now an opportune time to buy ANF? Find out in our full research report, it’s free.
Why Are We Positive on ANF?
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE: ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
1. Surging Same-Store Sales Show Increasing Demand
Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
Abercrombie and Fitch has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 7.3%.
2. Elite Gross Margin Powers Best-In-Class Business Model
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Abercrombie and Fitch has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 62.4% gross margin over the last two years. That means for every $100 in revenue, only $37.58 went towards paying for inventory, transportation, and distribution.
3. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Abercrombie and Fitch’s EPS grew at 147% compounded annual growth rate over the last three years, higher than its 12.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
These are just a few reasons why we think Abercrombie and Fitch is an elite consumer retail company. With the recent decline, the stock trades at 7.1× forward P/E (or $75.47 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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