Are Investors Undervaluing American Eagle Outfitters (AEO) Right Now?

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company value investors might notice is American Eagle Outfitters (AEO). AEO is currently sporting a Zacks Rank of #1 (Strong Buy), as well as an A grade for Value. The stock holds a P/E ratio of 14.78, while its industry has an average P/E of 16.81. Over the past year, AEO's Forward P/E has been as high as 16.30 and as low as 9.32, with a median of 13.11.

Investors will also notice that AEO has a PEG ratio of 0.65. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. AEO's PEG compares to its industry's average PEG of 1.02. Over the last 12 months, AEO's PEG has been as high as 3.12 and as low as 0.58, with a median of 0.89.

Another valuation metric that we should highlight is AEO's P/B ratio of 2.61. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 4.29. Over the past year, AEO's P/B has been as high as 2.75 and as low as 1.24, with a median of 1.87.

Finally, we should also recognize that AEO has a P/CF ratio of 10.03. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 14.45. Over the past 52 weeks, AEO's P/CF has been as high as 10.56 and as low as 6.01, with a median of 7.80.

Value investors will likely look at more than just these metrics, but the above data helps show that American Eagle Outfitters is likely undervalued currently. And when considering the strength of its earnings outlook, AEO sticks out at as one of the market's strongest value stocks.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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