Will Abercrombie & Fitch Continue to Trend?

With shares of Abercrombie & Fitch (NYSE:ANF) trading around $49, 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.

T = Technicals on the Stock Chart are Mixed

Abercrombie & Fitch stock has been on a strong path towards higher prices over the last several months. The stock is now consolidating at key levels. 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 near its key averages which signal neutral price action in the near-term.

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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

36.91%

20%

18%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish 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 Improving 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

64.00%

346.1%

52.63%

-45.71%

Revenue Growth (Y-O-Y)

-8.95%

10.52%

8.72%

3.78%

Earnings Reaction

-8.00%

-4.46%

34.44%

8.96%

Abercrombie & Fitch has seen improving earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Abercrombie & Fitch’s recent earnings announcements.

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P = Average 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 Outtiffers

Gap

American Eagle Outiffers

Sector

Year-to-Date Return

3.13%

-0.18%

32.64%

-6.68%

5.46%

Abercrombie & Fitch has been an average performer, year-to-date.

Conclusion

Abercrombie & Fitch provides highly demanded apparel and related accessories that stay in touch with the latest trends. The stock has been on the rise in recent months but is now consolidating before making its next significant move. Over the last four quarters, earnings and revenue figures have been improving a bit, but investors have had mixed feelings about the company. Relative to its peers and sector, Abercrombie & Fitch has been an average performer year-to-date. WAIT AND SEE what Abercrombie & Fitch does in coming quarters.

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