Can Abercrombie & Fitch Recover After Recent Negative News?

With shares of Abercrombie & Fitch (NYSE:ANF) trading around $38, is ANF an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Abercrombie & Fitch is a specialty retailer of casual apparel for men, women, and kids. Through its stores, the company is engaged in selling an array of products including casual sportswear apparel, knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories for men, women, and kids under the Abercrombie & Fitch, Abercrombie Kids, and Hollister brands. Abercrombie & Fitch operates in three segments — U.S. Stores, International Stores, and Direct-to-Consumer. Trends come and go, but Abercrombie & Fitch seems to always know what its consumers want. As its brand becomes accepted internationally at an increasing rate, look for Abercrombie & Fitch to see rising profits.

On Thursday morning, Abercrombie & Fitch posted earnings and revenues that came up short on Wall Street’s expectations. The revenue miss is a negative sign to investors who seek high growth out of the company.

T = Technicals on the Stock Chart are Weak

Abercrombie & Fitch stock has been trading sideways for most of this year. The stock is now trading at lows for the years after a negative earnings release. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Abercrombie & Fitch is trading below its key averages, which signal neutral to bearish price action in the near-term.

ANF

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Abercrombie & Fitch options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Abercrombie & Fitch Options

40.04%

16%

15%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

September Options

Steep

Average

October Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Abercrombie & Fitch’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Abercrombie & Fitch look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-20.00%

64.00%

346.10%

52.63%

Revenue Growth (Y-O-Y)

-0.60%

-8.95%

10.52%

8.72%

Earnings Reaction

-17.67%*

-8.00%

-4.46%

34.44%

Abercrombie & Fitch has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Abercrombie & Fitch’s recent earnings announcements.

*As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has Abercrombie & Fitch stock done relative to its peers, Urban Outfitters (NASDAQ:URBN), Gap (NYSE:GPS), American Eagle Outfitters (NYSE:AEO), and sector?

Abercrombie & Fitch

Urban Outfitters

Gap

American Eagle Outfitters

Sector

Year-to-Date Return

-19.80%

8.64%

35.24%

-26.40%

5.47%

Abercrombie & Fitch has been a poor relative performer, year-to-date.

Conclusion

Abercrombie & Fitch provides teenage apparel and related accessories that stay in touch with latest trends. The company recently released earnings that have not sat well with investors. The stock is currently trading at lows for the years after its negative earnings release. Over the last four quarters, earnings and revenues have been mixed which has left investors in the company disappointed. Relative to its peers and sector, Abercrombie & Fitch has been a weak year-to-date performer. WAIT AND SEE what Abercrombie & Fitch does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.