Up 56% YTD, Abercrombie & Fitch stock still has room to run

Key points

• Abercrombie & Fitch stock has jumped 56% YTD.

• The valuation remains low, with a forward P/E of 13.

• Analysts are bullish on the stock.

Clothing retailer Abercrombie & Fitch has had a stellar year so far, and it could get even better.

Abercrombie & Fitch (NYSE: ANF) stock has been one of the top performing retail stocks this year, as its price has risen 56% year-to-date to roughly $142 per share.

Typically, when investors see stocks with those kinds of gains, they figure they’ve missed the boat. They might assume the stock is too overpriced, and there’s no sense buying high.

But Abercrombie & Fitch does not fall into that category. In fact, Abercrombie & Fitch stock remains a relative value, with plenty of earnings momentum to propel it higher.

Still a good value

While the stock is up an impressive 56% YTD, it has been quite volatile, particularly lately. The 56% return is, in fact, down precipitously from its high of $193 per share back in May. At that time, Abercrombie & Fitch stock was up about 120% YTD.

Since reaching that high, the stock price fell to a low of around $130 per share in mid-September, a drop of 32%. Over the past month, Abercrombie & Fitch stock has regained its footing and is now up to $142 per share.

So, when you look at the bigger picture, you see that the 56% YTD is actually well off the staggering growth it had in the first half of the year. As a result, investors actually have an opportunity to buy this stock on the dip, as its price-to-earnings ratio has dropped to 14, from 20 back in May, and it has a forward P/E of just 13.

Not only does the stock have a low valuation; it has enjoyed strong earnings, even throughout its summer swoon. In the second quarter, the retailer saw net sales jump 21% year over year to 1.13 billion, with an 18% increase in same store sales.

Further, net income rose 133% to $133 million in the quarter, or $2.50 per share, which smashed analysts estimates of $2.22 per share. So, the recent drop in share price had nothing to do with earnings.

Analysts are bullish on Abercrombie & Fitch

Sometimes, a selloff is sparked by a weaker than expected outlook, but that also was not the case for Abercrombie & Fitch stock.

In its Q2 earnings report, the company actually raised its guidance for fiscal 2024, calling for 12% to 13% net sales growth in the fiscal year, up from previous projections of 10% growth. In addition, it expects double-digit sales growth in Q3.

Further, Abercrombie & Fitch expects its operating margin to be slightly higher at 15%, up from previous estimates of 14%.

The raises aren’t dramatic, but in what CEO Fran Horowitz called an “increasingly uncertain environment,” the boosts indicate its strength and confidence.

Analysts certainly like what they are seeing from Abercrombie & Fitch stock, as they have a consensus price target of $190 per share, which would suggest that the stock price will increase another 34% over the next 12 months.

Abercrombie & Fitch stock has been on a tear in recent years, with an average annualized return of 58% over the past five years. It’s hard to keep up that pace, but considering its relatively low valuation and growth expectations, this stock still looks like a good buy.