We’re seeing record sales numbers from Black Friday and Cyber Monday. But does that bode well for Abercrombie & Fitch Co. (NYSE:ANF) too? After all, traditional bricks-and-mortar retail was supposed to be dead thanks to e-commerce. So what does that mean for ANF stock?
Despite Amazon.com, Inc. (NASDAQ:AMZN) making its best efforts, traditional retail is not going out of style. At least, not within the next few months. So that makes many wonder whether Abercrombie & Fitch Co. is a stock they should own.
Let’s look over the catalysts. Don’t underestimate what it means for Americans to have confidence. Politics aside, it’s hard to deny that the economy is doing well. It’s also tough to say it looks like it will end any time soon.
We’re far from being too hot, but this steady growth we’ve got going on is the best it’s been in a decade. For the first time in ages, consumers aren’t looking over their shoulder wondering if it’s all about to come crashing down.
Housing has been strong and job growth has been solid. Auto sales from Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) continue to hover near their highs. Heck, GM just turned in record average transaction prices last month.
The point is, consumers are feeling good and they’re getting out there and spending money as a result. That trickles throughout home improvement stores like Home Depot Inc (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) all the way down to retailers like ANF and Nike Inc (NYSE:NKE).
Fundamentals of Abercrombie & Fitch Co.
So, what do the internals look like for ANF? Abercrombie & Fitch Co. hasn’t had the easiest time, to be honest. Revenue has declined each year from 2012 to 2016. Net income has been on the same path, dwindling from $237 million in 2012 to just $4 million last year.
Why would anyone bank on ANF stock? The hope is that it’s bottoming. Revenue for fiscal 2017 is forecast to come in at $3.4 billion. While that’s only marginally better than the $3.32 billion rung up in 2016, better is good.
Earnings per share is forecast to come in at 8 cents per share, better than the 6-cents-per-share loss last year. So with a potential bottoming in earnings and revenue, there’s reason for investors to be optimistic.
ANF stock trades with a high valuation, because its earnings have been axed down to almost nothing. In that regard, it trades at about 1 times book value, indicating its stock price is close to fair value if the company were to liquidate.
Surprisingly, Abercrombie & Fitch Co. still generates positive free-cash flow too. That’s one reason it hasn’t had to cut its 4.5% dividend yield.
With a market cap of just $1.2 billion, we’re not working with a big company. In fact, the retailer actually has $460 million in cash, although to note its debt, ANF does carry $264 million in long-term obligations.
Overall, ANF isn’t in a horrible spot, financially speaking, but it’s far from a home run. It’s valuation is so-so and sales and earnings are bottoming (for now anyway), allowing investors to breath a sigh of relief. That said, ANF stock has already rallied from sub-$9 in mid-summer to almost $18 now. Did we miss it?
There’s no doubt we failed to catch the bottom. But getting through this $15 to $17 area was no small feat. We are using a weekly chart and although ANF went charging through this level with apparent ease, it’s a level to respect.
In particular, look at the top line of the rectangle we drew ($17). That was significant support in 2015. When it gave way, we saw $15 quickly turn to resistance.
The Bottom Line on AMF Stock
I would not trust ANF stock as an investment, personally. There’s too much disruption in retail to blindly buy this name and hope it works out ten years from now. However, traders can take a long position so long as $17 holds as support. Below $17 and ANF is more questionable. But so long as we’re above these levels, a target of $21 can be used.