Should value investors choose Abercrombie & Fitch (ANF) stocks? – December 31, 2021


Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that go unnoticed and are attractive buys, or offer great discounts off their fair value?

One way to find these companies is to look at several key financial metrics and ratios, many of which are crucial in the value stock picking process. Let’s put Abercrombie & Fitch Co. (ANF Free report) into this equation and find out if this is a good choice for value investors right now, or if investors who subscribe to this methodology should look elsewhere for the best choices:

P / E ratio

A key metric that value investors always look at is the price-to-earnings ratio, or PE for short. It shows us how much investors are willing to pay for every dollar of profit in any given stock, and it’s easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the industry / sector average; and c) how it compares to the market as a whole.

On this front, Abercrombie & Fitch has a 12-month PE ratio of 7.5, as you can see in the graph below:

Image source: Zacks Investment Research

This level actually compares quite favorably to the market as a whole, as the PE for the S&P 500 is around 24.91. If we focus on the long term trend of PE, Abercrombie & Fitch’s current PE level puts it below its midpoint over the past five years.

Zacks investment researchImage source: Zacks Investment Research

In addition, the stock’s PE compares favorably with the Zacks Retail-Wholesale sector’s 12-month PE ratio of 30.29. At the very least, it indicates that the title is currently relatively undervalued compared to its peers.

Zacks investment researchImage source: Zacks Investment Research

We also have to point out that Abercrombie & Fitch has a forward PE (price to earnings for this year) ratio of just 7.36, so it’s fair to say that a slightly more value-oriented path may be at hand. come for Abercrombie & Fitch action in the short term too.

P / S Ratio

Another key indicator to note is the price / sales ratio. This approach compares the price of a given stock to its total sales, where a lower reading is generally considered better. Some people like this value metric more than others because it looks at sales, something that is much more difficult to manipulate with accounting tricks than profits.

Currently, Abercrombie & Fitch has a P / S ratio of approximately 0.59. That’s below the S&P 500 average, which currently sits at 5.18. Also, as we can see in the graph below, that number is below the highs of this particular stock in recent years.

Zacks investment researchImage source: Zacks Investment Research

On the contrary, ANF is in the lower end of its range in the time frame from a P / S metric, suggesting some level of undervalued trading, at least by historical standards.

Broad value outlook

Overall, Abercrombie & Fitch currently has a Zacks value score of A, which places it in the top 20% of all stocks we cover from this look. This makes Abercrombie & Fitch a solid choice for value investors.

What about the stock as a whole?

While Abercrombie & Fitch can be a good choice for value investors, there are many other factors to consider before investing in this name. In particular, it’s worth noting that the company has a Growth Score of F and Momentum Score of C. This gives ANF a Zacks VGM score – or its overall fundamental score – of A. (You can read more at Zacks style scores here >>)

Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen five estimates increase in the last sixty days compared to three decreases, while the estimate for the year 2021 has seen three upward revisions against one downward during the same. period.

This had a negative impact on the consensus estimate, as the consensus estimate for the current year decreased by 19.7% in the last two months, while the estimate for the year 2021 decreased by 1.4%. You can see the trend of the consensus estimate and recent stock price development in the chart below:

Despite bearish sentiment from analysts, the stock holds a Zacks Rank # 3 (Hold). Thus, we are looking for online performance from the company in the short term.

Final result

Abercrombie & Fitch is an inspired choice for value investors because it’s hard to beat its incredible range of stats on that front. A strong industry ranking (among the top 17% of over 250 industries) boosts our confidence.

However, a Rank 3 of Zacks makes it hard to get too excited about this business as a whole. In fact, over the past couple of years, the retail sector of Zacks Apparel & Footwear has clearly underperformed the market as a whole, as you can see below:

Zacks investment researchImage source: Zacks Investment Research

So value investors might want to wait for estimates and analyst sentiment to turn around on this name first, but once that happens, this stock could be a compelling choice.


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