Insiders are Buying at American Eagle (AEO)

Jelly Roll Capital Equity Research

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Why AEO’s Valuation Doesn’t Matter Anymore

I’ve been keying on shares of teen retailer American Eagle (AEO) in the last month, arguing at various points about the strong brand, excellent growth prospects, and cheap valuation. Sometimes though, it is best not to overthink things.

The reasons you should buy AEO can be summed up in three lines:

1. August 22nd: board Chairman Jay Schottenstein and board member Michael Jesselson buy a combined $1.07 million worth of AEO.
2. August 23rd: Schottenstein and Jesselson purchase another $3.18 milliion worth of AEO.
3. August 24th: CFO Joan Hilson adds to the insider purchasing roster with a $121,500 buy of AEO.

Of course, there are plenty of other reasons I can delineate in favor of buying AEO, such as the 10-year average ROE of 27.7%, or the extremely low 9x Operating CF and 13.8x FCF you’d be paying, but I think the three insider purchases should serve as enough of an attention-grabber. Look for American Eagle to continue to post strong growth in profitability and start outperforming the market, something the stock surprisingly hasn’t done in the last year.