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List of Articles Stocks and Investing Stocks I Own Stock Advice Weight Loss and Fitness Sports Donate Back to Home	A Financial Analysis of Aeropostale Introduction Aeropostale (ARO) is a $2.23 billion company in the apparel industry. Market capitalization competitors in this industry include J. Crew, American Eagle, and Ross Stores. The apparel industry is down 32.60% over the past year compared to the S&P 500 which is down 8.58% during the same period. Over the past month, the industry has been up 3.02%, while the S&P 500 has been up 1.26%. Strong technical trends may be indicative of a continued expansion in this industry. Evidence comes from a potential turnaround in general equities. Moreover, as there seems to be evidence of confidence in equities, retail stocks like Aeropostale will see future benefits. Also Aeropostale’s growth and valuation illustrate the potential for a strong earnings report next quarter. Business This section describes what Aeropostale’s produces. According to Reuters, Aeropostale, “is a mall-based specialty retailer of casual apparel and accessories.” Many different products are included in Aeropostale’s arsenal. These products include t-shirts, tops, bottoms, jeans, and other accessories. The targeted demographics range from teens (14-17 years old) and older individuals (18-25 years old) through its JimmyZ Surf subsidy. The products are sold in the United States and Canada through third party vendors, self-created stores, and its website. Growth Aeropostale has illustrated solid growth prospects over the past year. According to Reuters, Aeropostale reported a $1.59 billion revenue product last year. This number is up over 12.57% than it was the previous year. Compared to the industry’s average of 7.50%, investors see the relative strength compared to other competitors. This number is lower than the company’s five year average of 23.63%. However competitor annual averages of 15.85 % (J Crew) and 9.34% (American Eagle) are lower than Aeropostale’s current figures. And given that Aeropostale’s five year average is higher than the industry’s five year average of 12.07%, this company has the potential to move even higher. Aeropostale’s earnings grew at an astonishing 34.45% last year—a number much higher than the industry 7.42% average. Competitors such as Ross Stores only saw a 14.07% improvement and J Crew saw a disappointing increase in earnings of -0.17%. Therefore, earnings are another strong characteristic of Aeropostale. In addition, Aeropostale has kept its costs under control. According to Reuters, Aeropostale has reported gross, operating, and net profit margins of 34.77%, 12.73%, and 8.12% respectively over the past year. Moreover, these numbers are above the industry averages of 37.69%, 9.96%, and 6.42%, respectively. The numbers are also above the company’s five year average respective numbers of 32.51%, 12.35%, and 7.76%. This comparison illustrates a history of strong cost controls and positively-related consistency. The current averages are also better (business model respected) than competitor Ross Stores’ respective operating and net income averages of 7.24%, and 4.47%. The same comparison can be made for J Crew and American Eagle. Therefore, Aeropostale’s has proved to be a solid company in this industry. Its services are well-controlled cost wise, especially to direct market-cap competitors. Compiling all this information together and investors comes across ROE. Over the past year, Aeropostale reported an ROE of 50.73%. Therefore, out of all shareholder equity, more than 51% (above five year average of 38.71%) come from earnings instead of debt or stock. This number is much stronger compared to the industry average of 26.74%, and the number is better than some competitor averages 29.09% (American Eagle) and 28.34% (Ross Stores). Therefore, Aeropostale has a history of strong earnings per its equity share—which reflects the strong capital gain movement over the past year. And if history is any indication, there should be no reason why Aeropostale cannot continue its success. The same logic applies to Aeropostale 23.59% ROA (above industry average) and 35.24% ROI (above industry average). Valuation With fairly high growth estimates and historical data, there should be evidence of an overvalued company. However, this is not strictly the case. Aeropostale has a forward P/E ratio of 16.13 and a price to sales ratio of 1.23 compared to the industry’s respective 17.45 and 1.12, which shows a relatively undervalued status. In comparison, the rest of the market cap competitors have ratios that higher than Aeropostale. J Crew has a forward price to earnings ratio of 24.68 and price to sales ratio of 1.98. What makes Aeropostale’s figures are more enticing is these competing firms aren’t growing so greatly as strongly as Aeropostale. Aeropostale can now be seen as both a growing and valued company. Moreover, Aeropostale has a relatively low PEG (0.95) ratio compared to other competitors’ numbers as well. Efficiency Aeropostale is efficient. Inventory turnover at 8.72 is strong compared to other industry market-cap rivals (Ross Stores: 4.44). Moreover, asset turnover is also strong at 2.90 compared to competitor figures. Receivables turnover were not available, but cash is not an issue for Aeropostale. In terms of liquidation, Aeropostale current ratio is at 1.40. This number is a bit risky, but the company’s capital expenditures have increased (11.20%) which means further increases in capacity and economies of scale may be present in the future, because of this financing. Moreover, institutions own 92.48% of all Aeropostale shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability. Technical Analysis Aeropostale performed flat in the past year. The company’s share price has increased 6.51% year-to-year. This type of growth is solid for a recessionary-type economy, especially considering the fact that the housing market and construction is doing so poorly. There seems to be some support at the 26 dollar share price range dating back to late March 2008. The last time Aeropostale reached this amount the company rebounded and appreciated 31%. There is a possibility a similar or better situation could occur in the future. More specific to the current month, Aeropostale illustrates strong technical signals. Parabolic SAR is below and upward trending the current share price. This event usually signals an upturn in share price. The company is a little undervalued compared to the RSI index at 63.32, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of Aeropostale according to technical analysis, purchasing shares will still produce strong long terms gains. Conclusion Aeropostale is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise. -Dennis Biray May 16th, 2008 ©2008 BirayNetworks. All Rights Reserved

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A Financial Analysis of Aeropostale

Introduction

Aeropostale (ARO) is a $2.23 billion company in the apparel industry. Market capitalization competitors in this industry include J. Crew, American Eagle, and Ross Stores. The apparel industry is down 32.60% over the past year compared to the S&P 500 which is down 8.58% during the same period. Over the past month, the industry has been up 3.02%, while the S&P 500 has been up 1.26%. Strong technical trends may be indicative of a continued expansion in this industry. Evidence comes from a potential turnaround in general equities. Moreover, as there seems to be evidence of confidence in equities, retail stocks like Aeropostale will see future benefits. Also Aeropostale’s growth and valuation illustrate the potential for a strong earnings report next quarter.

Business

This section describes what Aeropostale’s produces. According to Reuters, Aeropostale, “is a mall-based specialty retailer of casual apparel and accessories.” Many different products are included in Aeropostale’s arsenal. These products include t-shirts, tops, bottoms, jeans, and other accessories. The targeted demographics range from teens (14-17 years old) and older individuals (18-25 years old) through its JimmyZ Surf subsidy. The products are sold in the United States and Canada through third party vendors, self-created stores, and its website.

Growth

Aeropostale has illustrated solid growth prospects over the past year. According to Reuters, Aeropostale reported a $1.59 billion revenue product last year. This number is up over 12.57% than it was the previous year. Compared to the industry’s average of 7.50%, investors see the relative strength compared to other competitors. This number is lower than the company’s five year average of 23.63%. However competitor annual averages of 15.85 % (J Crew) and 9.34% (American Eagle) are lower than Aeropostale’s current figures. And given that Aeropostale’s five year average is higher than the industry’s five year average of 12.07%, this company has the potential to move even higher. Aeropostale’s earnings grew at an astonishing 34.45% last year—a number much higher than the industry 7.42% average. Competitors such as Ross Stores only saw a 14.07% improvement and J Crew saw a disappointing increase in earnings of -0.17%. Therefore, earnings are another strong characteristic of Aeropostale.

In addition, Aeropostale has kept its costs under control. According to Reuters, Aeropostale has reported gross, operating, and net profit margins of 34.77%, 12.73%, and 8.12% respectively over the past year. Moreover, these numbers are above the industry averages of 37.69%, 9.96%, and 6.42%, respectively. The numbers are also above the company’s five year average respective numbers of 32.51%, 12.35%, and 7.76%. This comparison illustrates a history of strong cost controls and positively-related consistency. The current averages are also better (business model respected) than competitor Ross Stores’ respective operating and net income averages of 7.24%, and 4.47%. The same comparison can be made for J Crew and American Eagle. Therefore, Aeropostale’s has proved to be a solid company in this industry. Its services are well-controlled cost wise, especially to direct market-cap competitors.

Compiling all this information together and investors comes across ROE. Over the past year, Aeropostale reported an ROE of 50.73%. Therefore, out of all shareholder equity, more than 51% (above five year average of 38.71%) come from earnings instead of debt or stock. This number is much stronger compared to the industry average of 26.74%, and the number is better than some competitor averages 29.09% (American Eagle) and 28.34% (Ross Stores). Therefore, Aeropostale has a history of strong earnings per its equity share—which reflects the strong capital gain movement over the past year. And if history is any indication, there should be no reason why Aeropostale cannot continue its success. The same logic applies to Aeropostale 23.59% ROA (above industry average) and 35.24% ROI (above industry average).

Valuation

With fairly high growth estimates and historical data, there should be evidence of an overvalued company. However, this is not strictly the case. Aeropostale has a forward P/E ratio of 16.13 and a price to sales ratio of 1.23 compared to the industry’s respective 17.45 and 1.12, which shows a relatively undervalued status. In comparison, the rest of the market cap competitors have ratios that higher than Aeropostale. J Crew has a forward price to earnings ratio of 24.68 and price to sales ratio of 1.98. What makes Aeropostale’s figures are more enticing is these competing firms aren’t growing so greatly as strongly as Aeropostale. Aeropostale can now be seen as both a growing and valued company. Moreover, Aeropostale has a relatively low PEG (0.95) ratio compared to other competitors’ numbers as well.

Efficiency

Aeropostale is efficient. Inventory turnover at 8.72 is strong compared to other industry market-cap rivals (Ross Stores: 4.44). Moreover, asset turnover is also strong at 2.90 compared to competitor figures. Receivables turnover were not available, but cash is not an issue for Aeropostale. In terms of liquidation, Aeropostale current ratio is at 1.40. This number is a bit risky, but the company’s capital expenditures have increased (11.20%) which means further increases in capacity and economies of scale may be present in the future, because of this financing. Moreover, institutions own 92.48% of all Aeropostale shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability.

Technical Analysis

Aeropostale performed flat in the past year. The company’s share price has increased 6.51% year-to-year. This type of growth is solid for a recessionary-type economy, especially considering the fact that the housing market and construction is doing so poorly. There seems to be some support at the 26 dollar share price range dating back to late March 2008. The last time Aeropostale reached this amount the company rebounded and appreciated 31%. There is a possibility a similar or better situation could occur in the future.

More specific to the current month, Aeropostale illustrates strong technical signals. Parabolic SAR is below and upward trending the current share price. This event usually signals an upturn in share price. The company is a little undervalued compared to the RSI index at 63.32, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of Aeropostale according to technical analysis, purchasing shares will still produce strong long terms gains.

Conclusion

Aeropostale is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise.

-Dennis Biray
May 16th, 2008