Improving Profit Margins Can Mean Big Bucks for Shareholders

Investors have many ways of looking at a company. Ideally, a company will show growth. But a company can do much to show growth, and even pay up to do so. That could mean a winning share price in the short-term, at the risk of long-term dangers to a company.

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  • That’s why investors should look for companies that can grow and improve their profit margins over time. That’s a sign of a company getting better at doing its job, and having more cash for shareholders.

    Apparel retailer Abercrombie & Fitch (ANF) is up over 220 percent in the past year. Despite the challenges for clothing retailers, ANF has managed to improve its earnings and profit margins.

    Its latest forecast helped push shares back to near 52-week highs.

    Even with its big move higher, shares trade at 18 times forward earnings, a slight discount to the market. With the company’s improving margins, shares could trend even higher.

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  • Action to take: Shares likely still have some upside here. Investors may want to buy a partial stake now, and use a pullback to buy more. Currently, Abercrombie does not pay a dividend.

    For traders, the March $105 calls, last going for about $6.50, could see mid-double-digit returns or better if shares continue to trend higher and break through to new 52-week highs.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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