Remember when Abercrombie & Fitch was that store you’d walk past in the mall while trying not to make eye contact with the shirtless models? Well, plot twist: their stock might actually be worth your attention right now.
Here’s what happened: A&F shares jumped 6% on Monday after JPMorgan analysts basically said “hey, this thing is criminally undervalued.” They bumped their price target from $141 to $151 per share. With the stock sitting at $98, that’s a potential 54% upside. Even if you’re skeptical of Wall Street’s eternal optimism, the median price target of $115 still suggests a solid 17% return.
Why the sudden love?
The analysts are seeing strong momentum heading into Q2 earnings. The company guided for 3-5% sales growth, which sounds modest until you remember we’re talking about retail in 2025. That’s like finding a unicorn that also does your taxes.
But here’s the kicker: this stock is trading at just 9 times earnings. Nine! That’s cheaper than your local diner’s coffee. For context, A&F has averaged a ridiculous 59% annual return over the past five years. Sure, past performance doesn’t guarantee future results (thanks, SEC), but that track record is hard to ignore.
The not-so-pretty parts
Let’s be real – there are some clouds on this horizon. Tariffs are expected to cost the company $50 million this year and shave 100 basis points off their operating margin. That’s finance-speak for “ouch, that’s gonna hurt.”
The stock is also down 36% year-to-date, which explains why it’s so cheap. Sometimes stocks are cheap for good reasons, and sometimes the market just gets moody. The trick is figuring out which one this is.
The bigger picture
Despite the tariff headwinds, A&F posted record Q1 sales of $1.1 billion, up 8% year-over-year. Their Hollister brand is particularly strong, which makes sense – apparently, teens still want to look like they just rolled off a California beach.
The company isn’t just sitting around either. They’re planning to open 40 new stores and remodel 40 others this year, dropping $200 million on expansion. That’s either confidence or expensive optimism – time will tell.
The verdict
Is this the “best value stock” out there? That’s a big claim in a market full of beaten-down names. But at 9 times earnings, with a solid track record and analysts getting excited, it’s definitely worth a closer look.
The tariff situation is the wild card here. If management can navigate that successfully (they say they’re working on it), this could be one of those “obvious in hindsight” plays. If not, well, at least you’ll have learned something about retail margins.
Just remember: even the smartest analysts are sometimes wrong, markets can stay irrational longer than you can stay solvent, and past performance really doesn’t guarantee future results. But sometimes, a cheap stock with good fundamentals is just… cheap for now.