Fast-paced Momentum Stock American Eagle (AEO) Is Still Trading at a Bargain
Momentum investing is essentially the opposite of the tried-and-tested Wall Street adage -- "buy low and sell high." Investors following this investing style typically avoid betting on cheap stocks and waiting long for them to recover. They believe instead that one could make far more money in lesser time by "buying high and selling higher."
Everyone likes betting on fast-moving trending stocks, but it isn't easy to determine the right entry point. These stocks often lose momentum when their future growth potential fails to justify their swelled-up valuation. In that phase, investors find themselves invested in shares that have limited to no upside or even a downside. So, betting on a stock just by looking at the traditional momentum parameters could be risky at times.
It could be safer to invest in bargain stocks that have been witnessing price momentum recently. While the Zacks Momentum Style Score (part of the Zacks Style Scores system), which pays close attention to trends in a stock's price or earnings, is pretty useful in identifying great momentum stocks, our 'Fast-Paced Momentum at a Bargain' screen comes handy in spotting fast-moving stocks that are still attractively priced.
There are several stocks that currently pass through the screen and American Eagle Outfitters (AEO) is one of them. Here are the key reasons why this stock is a great candidate.
A dash of recent price momentum reflects growing interest of investors in a stock. With a four-week price change of 12.2%, the stock of this teen clothing retailer is certainly well-positioned in this regard.
While any stock can see a spike in price for a short period, it takes a real momentum player to deliver positive returns for a longer time frame. AEO meets this criterion too, as the stock gained 38.2% over the past 12 weeks.
Moreover, the momentum for AEO is fast paced, as the stock currently has a beta of 1.41. This indicates that the stock moves 41% higher than the market in either direction.
Given this price performance, it is no surprise that AEO has a Momentum Score of B, which indicates that this is the right time to enter the stock to take advantage of the momentum with the highest probability of success.
In addition to a favorable Momentum Score, an upward trend in earnings estimate revisions has helped AEO earn a Zacks Rank #2 (Buy). Our research shows that the momentum-effect is quite strong among Zacks Rank #1 and #2 stocks. That's because as covering analysts raise their earnings estimates for a stock, more and more investors take an interest in it, helping its price race to keep up. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>
Most importantly, despite possessing fast-paced momentum features, AEO is trading at a reasonable valuation. In terms of Price-to-Sales ratio, which is considered as one of the best valuation metrics, the stock looks quite cheap now. AEO is currently trading at 0.59 times its sales. In other words, investors need to pay only 59 cents for each dollar of sales.
So, AEO appears to have plenty of room to run, and that too at a fast pace.
In addition to AEO, there are several other stocks that currently pass through our 'Fast-Paced Momentum at a Bargain' screen. You may consider investing in them and start looking for the newest stocks that fit these criteria.
This is not the only screen that could help you find your next winning stock pick. Based on your personal investing style, you may choose from over 45 Zacks Premium Screens that are strategically created to beat the market.
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American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
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