American Eagle (AEO): Buy, Sell, or Hold Post Q1 Earnings?

American Eagle has gotten torched over the last six months - since December 2024, its stock price has dropped 43.6% to $9.70 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in American Eagle, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is American Eagle Not Exciting?

Despite the more favorable entry price, we don't have much confidence in American Eagle. Here are three reasons why we avoid AEO and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last six years, American Eagle grew its sales at a sluggish 4.3% compounded annual growth rate. This was below our standard for the consumer retail sector.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect American Eagle’s revenue to drop by 1.9%, a decrease from This projection is underwhelming and suggests its products will see some demand headwinds.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

American Eagle historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.6%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Final Judgment

American Eagle isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 7.8× forward P/E (or $9.70 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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