Should Abercrombie & Fitch Be In Your Portfolio?

With shares of Abercrombie & Fitch (NYSE:ANF) trading around $48, is ANF an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Abercrombie & Fitch is a specialty retailer of casual apparel for men, women and kids. Through stores and direct-to-consumer operations, the company is engaged in selling an array of products including casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories for men, women and kids under the Abercrombie & Fitch, Abercrombie kids, and Hollister brands. In addition, the company operates stores and direct-to-consumer operations offering bras, underwear, personal care products, sleepwear, and at-home products for women under the Gilly Hicks brand. Through its stores and brands, Abercrombie & Fitch provides clothing products loved by many consumers around the world.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

T = Technicals on the Stock Chart are Mixed

Abercrombie & Fitch stock saw an amazing recovery from the selling pressure of the Financial Crisis. However, the stock has since then pulled back significantly and is now trying to regain its footing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Abercrombie & Fitch is trading around its key averages which signal neutral price action in the near-term.

ANF

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Abercrombie & Fitch options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Abercrombie & Fitch Options

45%

86%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Abercrombie & Fitch’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Abercrombie & Fitch look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

346.10%

52.63%

-45.71%

-89.29%

Revenue Growth (Y-O-Y)

10.53%

8.74%

3.78%

10.11%

Earnings Reaction

-4.46%

34.44%

8.96%

-12.99%

Abercrombie & Fitch has seen mostly increasing earnings and revenue over the last four quarters. From these figures, the markets have had mixed feelings about Abercrombie & Fitch’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Abercrombie & Fitch stock done relative to its peers, American Eagle Outfitters (NYSE:AEO), Gap (NYSE:GPS), Urban Outfitters (NASDAQ:URBN), and sector?

Abercrombie & Fitch

American Eagle Outfitters

Gap

Urban Outfitters

Sector

Year-to-Date Return

1.29%

-6.92%

20.68%

3.96%

15.9%

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Abercrombie & Fitch has been a relative underperformer, year-to-date.

Conclusion

Abercrombie & Fitch provides apparel to a growing consumer population around the world that is increasingly more fascinated with their products. The stock has had its good and bad times and is currently attempting to regain its footing. Earnings and revenue figures have been mostly increasing but investors have expected a little more from the company. Relative to its peers and sector, Abercrombie & Fitch stock has been a poor relative performer, year-to-date. WAIT AND SEE what Abercrombie & Fitch does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More Articles About:   ,