Is American Eagle Outfitters Headed for a Big Move?

American Eagle Outfitters Inc. (AEO) has been trading in a sideways range over the past several months, where it has formed a resistance line and a level of support. If the stock breaks through either level, a big move is expected. Read more to learn how to take advantage of this trade.

American Eagle Outfitters Inc. (AEO) is an apparel and accessory retailer with company stores throughout North America, China, Hong Kong, and the United Kingdom. The company's primary brand, American Eagle Outfitters, sells casual apparel and accessories that target 15- to 25-year-old men and women.

The company has seen growth across both the American Eagle (AE) and Aerie brands. AEO has even recorded its 26th successive quarter of double-digit growth for the Aerie brand. In addition, the company is progressing with its Real Power, Real Growth plan.

AEO has a current ratio of 2.0, which indicates it has more than enough liquidity to handle short-term obligations. However, its net profit margin of 3.4% is less than the industry average. From a growth standpoint, EPS has fallen an average of 19.7% per year over the past three years, but is expected to rise 5,250% this year.

The stock appears undervalued based on its forward P/E of 15.43. Its price-to-sales ratio of 1.5 is also below the industry average. AEO’s stock has been trending higher since last fall but has shown mixed momentum over the past few months as shown in the chart below.

Take a look at the 1-year chart of AEO below with added notations:

Chart of AEO provided by TradingView

AEO has moved into a sideways trading range over the past several months. The range’s resistance is at $38 (red), while the support area is around $32 (green).  AEO has rallied back to the middle of the range, but at some point the stock will have to break out of it, one way or the other.

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The possible long position is on a breakout above $38. The ideal short opportunity would be on a break below $32.

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AEO shares were trading at $35.34 per share on Thursday morning, down $0.17 (-0.48%). Year-to-date, AEO has gained 77.81%, versus a 19.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing.


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