With a P/E ratio of 16 and a 35% growth rate, Abercrombie & Fitch stock looks like a buy.
Abercrombie & Fitch (ANF 24.32%) stock surged 19% through 11:05 a.m. ET after reporting Q1 2024 earnings this morning — and beating Wall Street analyst targets with a stick.
Expected to earn $1.73 per share on $963 million in sales in the year’s first quarter, Abercrombie instead reported a per-share profit of $2.14 and sales of more than $1 billion.
Abercrombie & Fitch Q1 earnings
And this good news gets better. A&F’s sales didn’t just beat expectations; it reported its best sales quarter ever, with sales up 22% year over year. Hollister brand sales grew 12%, and Abercrombie brands were up 31%. Profits on these sales also surged, with operating margins rising 860 basis points to 12.7%.
That sounds pretty impressive. It’s even more impressive when you realize what it means: For every $1 in revenue A&F brought in last quarter, it roughly tripled that sale’s profits.
Is Abercrombie & Fitch stock a buy?
With such a strong start to the year, it almost goes without saying that Abercrombie & Fitch was in a good position to raise guidance for the rest of the year — and it did. Management now forecasts that sales will grow 10% from 2023 levels this year, which is twice the company’s prior growth forecast. Operating profit margins will also be better than previously forecast, at 14%.
Working off these projections, it therefore appears that A&F is forecasting it will earn an operating profit of about $662 million this year, or 35% profits growth year over year. It remains to be seen what that will work out to on the bottom line but, if full-year profits resemble Q1 profits, then $662 million in operating income should be approximately about $585 million in net income. And divided among 51.1 million shares outstanding, that implies a per-share profit of $11.45, which would be significantly better than Wall Street’s forecast of $8.04.
At a share price of just 16 times that estimate, I have to admit: Abercrombie & Fitch stock kind of looks like a buy to me.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.