Apparel Retailers Head in to Earnings Riding Huge Gains
One of the hardest hit industries in the past year has been retail apparel. Many of the companies that base their stores in the traditional enclosed shopping malls were already struggling even before the global health crisis hit. With malls closed or operating with limited hours, many of the apparel retailers were hit particularly hard.
Over the last four months the stocks of these companies have pretty strong bounces as investors believed the selling was overdone. Three companies in particular that have seen huge rallies in recent months will also be reporting earnings next week. Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), and Gap (GPS) are all set to report earnings on November 24.
If we look at the stocks of these companies over the last four months, we see some incredible gains. From July 20 through November 19, Abercrombie & Fitch gained 118.2%, Gap rallied 96.6%, and American Eagle jumped 70.6%. During that same time period the S&P 500 only gained 10.2%.
While Abercrombie was the leading performer of the three, the daily chart of Gap really caught my eye because of how organized and consistent the rally has been. We see a very well formed trend channel that defines the cycles within the overall upward trend.
As impressive as the rallies have been, I have my concerns about whether these companies can warrant such huge moves in their stock. In the last round of quarterly earnings reports we saw all three post revenue declines with Abercrombie seeing its revenue drop 17%, American Eagle’s dropped 15%, and Gap saw its sales drop 18%.
That isn’t exactly the recipe for success and all three companies have rather small profit margins. This means that the companies need to sell more and more product in order to bring their earnings up.
If we look at Tickeron’s fundamental analysis screener, all three companies rank poorly in the Profit vs. Risk rating—that rating is not based on the profits of the company, but rather the potential profit for investors versus the risk associated with buying it. The SMR ratings for Gap and American Eagle are both very poor and that rating includes the sales growth and profit margin figures mentioned above. One area where the stocks seem to do well was in the Valuation Rating. Both Gap and Abercrombie are rated above average in this category while American Eagle is average.
All three companies are expected to see big declines in their third quarter earnings results compared to Q3 2019. Abercrombie is expected to lose money in the quarter while Gap and American Eagle are expected to remain profitable, but see earnings decline by over 30% each. All three companies are expected to post huge declines in earnings for 2020 with big rebounds expected in 2021.
The overall comparison from Tickeron lays out how the companies compare to one another and how they measure up against other companies in general.
GAP sees its 50-day moving average cross bullishly above its 200-day moving average
The 50-day moving average for GAP moved above the 200-day moving average on December 17, 2024. This could be a long-term bullish signal for the stock as the stock shifts to an upward trend.
Technical Analysis (Indicators)
Bullish Trend Analysis
The Stochastic Oscillator suggests the stock price trend may be in a reversal from a downward trend to an upward trend. of 66 cases where GAP's Stochastic Oscillator exited the oversold zone resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where GAP advanced for three days, in of 288 cases, the price rose further within the following month. The odds of a continued upward trend are .
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on January 07, 2025. You may want to consider selling the stock, shorting the stock, or exploring put options on GAP as a result. In of 81 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where GAP declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is slightly undervalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (3.922) is normal, around the industry mean (3.964). P/E Ratio (20.336) is within average values for comparable stocks, (110.742). Projected Growth (PEG Ratio) (1.003) is also within normal values, averaging (1.444). Dividend Yield (0.022) settles around the average of (0.028) among similar stocks. P/S Ratio (0.688) is also within normal values, averaging (1.139).
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating steady price growth. GAP’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating that the returns do not compensate for the risks. GAP’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 74, placing this stock better than average.
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
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Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
General Information
an operator of stores that retail clothing, accessories and personal care products
Industry ApparelFootwearRetail