Why American Eagle Stock Went Flying Monday

Key Points

• President Trump endorsed American Eagle Outfitters' new Sydney Sweeney ad campaign this morning.

• The president also tried to turn the campaign political, which may alienate some voters -- and shoppers and investors.

• From a pure valuation perspective, though, AE stock looks attractive.

• 10 stocks we like better than American Eagle Outfitters ›

American Eagle (NYSE: AEO) stock is flying higher to start off the week -- partly because of you-know-what, the new ad campaign featuring A-list actress Sydney Sweeney and her "Great Jeans" -- but also for another, related reason.

Image source: Getty Images.

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In a post on Truth Social this morning, President Trump praised the ad campaign and declared AE's jeans are now "flying off the shelves." Investors are taking their cue from the president, making the same thing happen with American Eagle stock, which is up an astonishing 19% through 12:35 p.m. ET.

Is this good or bad news for American Eagle stock?

A shout-out from President Trump could turn out to be a double-edged sword. I fear he's doing AE no favors by turning AE's ad campaign political. Tagging Sweeney as "a registered Republican" in his post could attract one half of the American public to AE's stores, boosting sales and profits. It could also alienate the other half.

Investors should be wary of this, even if today the president's endorsement seems unqualifiedly good news.

Is American Eagle stock a buy?

With that reservation in mind, let's take a quick look at the numbers.

Valued at $1.9 billion, with $197 million in trailing-12-month earnings and superior free cash flow ($212 million), AE stock looks objectively cheap -- costing less than 10x earnings, and less than 9x free cash flow.

Earnings are expected to double over 2024 levels this year, hitting $1.68 per share, but fall back below $1 in 2026. That kind of volatility can make it hard to value the stock. I'm also leery of the debt load -- $1.7 billion net of cash on hand. Still, AE pays a generous 4.7% dividend yield.

On balance, I consider it a solid stock.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends American Eagle Outfitters. The Motley Fool has a disclosure policy.