With shares of Abercrombie & Fitch (NYSE:ANF) trading around $54, 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 its stores, the company is engaged in selling an array of products including casual sportswear apparel — 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. Abercrombie & Fitch operates in three segments: U.S. Stores, International Stores, and Direct-to-Consumer. Trends come and go, but Abercrombie & Fitch seems to always know what its consumers want. As its brand becomes accepted internationally at an increasing rate, look for Abercrombie & Fitch to see rising profits.
T = Technicals on the Stock Chart are Strong
Abercrombie & Fitch stock has seen its stock price more than double since reaching lows during the 2008 Financial Crisis. The stock is currently displaying a strong bounce from a two-year pullback. 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 above its rising key averages which signal neutral to bullish price action in the near-term.
(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 | 50.88% | 73% | 70% |
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 | |
| June Options | Flat | Average |
| July 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) | 346.1% | 52.63% | -45.71% | -89.29% |
| Revenue Growth (Y-O-Y) | 10.52% | 8.72% | 3.78% | 10.10% |
| Earnings Reaction | -4.46% | 34.44% | 8.96% | -12.99% |
Abercrombie & Fitch has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have had mixed feelings about Abercrombie & Fitch’s recent earnings announcements.
P = Excellent 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 | 13.13% | -1.37% | 33.71% | 10.09% | 11.05% |
Abercrombie & Fitch has been a relative performance leader, year-to-date.
Conclusion
Abercrombie & Fitch provides a wide range of apparel to consumers of all ages around the world. The stock is seeing a good pop after pulling-back the last couple of years. Earnings and revenue figures have been increasing over most of the last four quarters, however, investors have been a bit confused. Relative to its peers and sector, Abercrombie & Fitch has been a year-to-date performance leader. Look for Abercrombie & Fitch to OUTPERFORM.
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