Reliable Long-term Trend to Profit From: American Eagle Outfitters, Inc. (AEO), AMC Entertainment Holdings, Inc. (AMC)

The shares of American Eagle Outfitters, Inc. have increased by more than 29.68% this year alone. The shares recently went down by -3.48% or -$0.88 and now trades at $24.38. The shares of AMC Entertainment Holdings, Inc. (NYSE:AMC), has jumped by 9.93% year to date as of 06/22/2018. The shares currently trade at $16.60 and have been able to report a change of 6.41% over the past one week.

The stock of American Eagle Outfitters, Inc. and AMC Entertainment Holdings, Inc. were two of the most active stocks on Friday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 5.50% versus 6.20%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that AEO will grow it’s earning at a 5.50% annual rate in the next 5 years. This is in contrast to AMC which will have a positive growth at a 6.20% annual rate. This means that the higher growth rate of AMC implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. AEO has an EBITDA margin of 12.03%, this implies that the underlying business of AEO is more profitable. The ROI of AEO is 16.00% while that of AMC is -2.40%. These figures suggest that AEO ventures generate a higher ROI than that of AMC.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, AEO’s free cash flow per share is a negative -1.12, while that of AMC is positive 0.63.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for AEO is 2.00 and that of AMC is 0.60. This implies that it is easier for AEO to cover its immediate obligations over the next 12 months than AMC. The debt ratio of AEO is 0.00 compared to 2.35 for AMC. AMC can be able to settle its long-term debts and thus is a lower financial risk than AEO.


AEO currently trades at a forward P/E of 15.27, a P/B of 3.57, and a P/S of 1.13 while AMC trades at a forward P/E of 36.73, a P/B of 1.02, and a P/S of 0.41. This means that looking at the earnings, book values and sales basis, AEO is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of AEO is currently at a 0.87% to its one-year price target of 24.17. Looking at its rival pricing, AMC is at a -19.81% relative to its price target of 20.70.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), AEO is given a 2.50 while 2.30 placed for AMC. This means that analysts are more bullish on the outlook for AEO stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for AEO is 3.01 while that of AMC is just 9.32. This means that analysts are more bullish on the forecast for AEO stock.


The stock of American Eagle Outfitters, Inc. defeats that of AMC Entertainment Holdings, Inc. when the two are compared, with AEO taking 6 out of the total factors that were been considered. AEO happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, AEO is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AEO is better on when it is viewed on short interest.

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