Retail investments as a whole haven’t enjoyed consistent performances. But apparel and fashion king American Eagle Outfitters (NYSE:AEO) has bucked the trend considerably. Just prior to its second-quarter earnings report, American Eagle stock had gained nearly 46% against its January opener. Nevertheless, investors are now questioning the company’s viability in the markets.

Technically, it’s a fair inquiry. Similar apparel companies have produced mixed results this year. On the positive side of things, we have Abercrombie & Fitch (NYSE:ANF). ANF is up 51% for the year, a substantial lead over American Eagle stock. But on the flipside, we have Gap (NYSE:GPS), which is down over 10%.

Even department stores, which represent real-time benchmarks for the broader apparel industry, offer a dichotomous look. For instance, Macy’s (NYSE:M) resoundingly beat its earnings print, but the Street wasn’t impressed with weak growth prospects. As a result, M stock took a beating, and shares still look weak today.

However, Nordstrom (NYSE:JWN) stands in contrast. JWN is up over 23% in the month and has gained a remarkable 29% for the year. You can understand the dilemma here. Will American Eagle stock follow ANF or GPS? Nordstrom or Macy’s?

Bulls may point out AEO’s fundamental credibility. Despite a tough retail environment, and especially for apparel, the company produced significant sales growth. In Q1 2018, AEO rang up $823 million in revenue, up 8% from the year-ago quarter. That performance is right up there with close rival Abercrombie & Fitch.

Additionally, AEO features an incredibly stable balance sheet unladen with debt.

At the same time, American Eagle stock has naturally become pricey relative to earnings. Clearly, investors want to see something special. So let’s take a look at the recent earnings figures.

AEO Volatile Despite Strong Earnings Beat

Fundamentally, AEO fired on all key metrics, producing the kind of earnings beat that indicates a broad retail recovery. Still, American Eagle stock absorbed substantial volatility, in blatant contradiction of the financial performance.

Prior to the Q2 disclosure, consensus estimates pegged earnings per share at 31 cents. This target was near the lower end of individual estimates, which ranged from 29 cents to 34 cents. However, actuals came in at the top end at 34 cents. This compared very favorably to the year-ago quarter, where the company delivered a 12-cent EPS, or 19-cent adjusted EPS.

The revenue picture was even brighter. The Street anticipated a consensus target of $935 million. Individual estimates ranged from $888 million to $958.1 million. Actuals exceeded the estimate spectrum, ringing up $965 million. Again, this haul contrasted favorably to Q2 from one year ago, which saw $845 million.

Management struck an upbeat tone, articulating that the results represented record sales and robust earnings growth. AEO enjoyed 9% consolidated-comparable sales growth, a marked improvement from the 2% increase from last year. Furthermore, this was the highest comp growth since 2015, proving that the brick-and-mortar format is alive and well.

At the same time, AEO made significant gains in their e-commerce channels. Their digital businesses maintained double-digit growth rates.

Unfortunately, the outstanding news didn’t move American Eagle stock the right way. Shares have slipped by more than 11% at this point.

So why the volatility? Unlike rival Express (NYSE:EXPR), AEO management guided Q3 earnings below consensus expectations. The two shared almost-perfectly opposite premarket sentiment.

Moreover, AEO execs indicated capital expenditures of $54 million, which increased nearly 15% year-over-year. In part, this was due to new store openings, which may have spooked investors due to the poor guidance.

The Low-Hanging Fruit for American Eagle Stock Is Gone

On a longer-term basis, investors probably can’t go wrong with American Eagle stock. As previously mentioned, the company levers a near-perfect balance sheet. This is an organization that’s not going anywhere anytime soon.

Not only that, AEO has demonstrated consistently rising growth. Since at least 2014, annual sales have increased consecutively, averaging an impressive 5% growth rate. In contrast, both Abercrombie & Fitch and Gap feature disjointed revenue figures over the same time frame.

That said, I’m not sure how much can go right with American Eagle stock. Shares have roughly doubled in value compared to its August 2017 lows, even accounting for recent volatility.

Granted, an explosive rally doesn’t necessarily negate further gains. However, it just makes it more likely that shares will experience a correction, or in this case, to maintain a corrective course for some time.

Of course, I have zero doubt that the apparel and fashion industry is extremely lucrative. It’s also extremely competitive. If your products don’t align with consumer tastes and trends, things can sour rapidly. Furthermore, based on the consumer price index for the apparel industry, demand may have flatlined since 2012.

If that’s the case, the consumer base hasn’t changed much, particularly for higher-end, fashionable apparel. Therefore, sector players must compete in a zero-sum game: your victory must come at the expense of another.

I don’t doubt that American Eagle stock can win out against its rivals. Fundamentally, the company has the right stuff. But I also believe most of this optimism is priced in, even with the selloff. You can buy AEO, but I’d keep expectations in check.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.