Dissecting the Numbers for American Eagle Outfitters, Inc. (AEO) and Caleres, Inc. (CAL)

American Eagle Outfitters, Inc. (NYSE:AEO) shares are up more than 19.89% this year and recently increased 4.16% or $0.9 to settle at $22.54. Caleres, Inc. (NYSE:CAL), on the other hand, is up 7.68% year to date as of 05/16/2018. It currently trades at $36.05 and has returned 5.59% during the past week.

American Eagle Outfitters, Inc. (NYSE:AEO) and Caleres, Inc. (NYSE:CAL) are the two most active stocks in the Apparel Stores industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.


The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect AEO to grow earnings at a 5.60% annual rate over the next 5 years. Comparatively, CAL is expected to grow at a 15.00% annual rate. All else equal, CAL’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 7.42% for Caleres, Inc. (CAL). AEO’s ROI is 16.00% while CAL has a ROI of 11.40%. The interpretation is that AEO’s business generates a higher return on investment than CAL’s.

Cash Flow

Cash is king when it comes to investing. AEO’s free cash flow (“FCF”) per share for the trailing twelve months was +0.83. Comparatively, CAL’s free cash flow per share was +1.33. On a percent-of-sales basis, AEO’s free cash flow was 3.85% while CAL converted 2.06% of its revenues into cash flow. This means that, for a given level of sales, AEO is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. AEO has a current ratio of 2.00 compared to 2.00 for CAL. This means that AEO can more easily cover its most immediate liabilities over the next twelve months. AEO’s debt-to-equity ratio is 0.00 versus a D/E of 0.28 for CAL. CAL is therefore the more solvent of the two companies, and has lower financial risk.


AEO trades at a forward P/E of 14.65, a P/B of 3.20, and a P/S of 1.03, compared to a forward P/E of 13.26, a P/B of 2.10, and a P/S of 0.55 for CAL. AEO is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. AEO is currently priced at a 10.76% to its one-year price target of 20.35. Comparatively, CAL is 5.26% relative to its price target of 34.25. This suggests that CAL is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. AEO has a beta of 0.98 and CAL’s beta is 0.87. CAL’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. AEO has a short ratio of 2.79 compared to a short interest of 6.33 for CAL. This implies that the market is currently less bearish on the outlook for AEO.


Caleres, Inc. (NYSE:CAL) beats American Eagle Outfitters, Inc. (NYSE:AEO) on a total of 8 of the 14 factors compared between the two stocks. CAL is more profitable and has higher cash flow per share. In terms of valuation, CAL is the cheaper of the two stocks on an earnings, book value and sales basis, CAL is more undervalued relative to its price target. Finally, JMEI has better sentiment signals based on short interest.

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