Last update on 2024-06-07

American Eagle Outfitters (AEO) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Comprehensive analysis of American Eagle Outfitters (AEO) using the Piotroski F-Score for 2023. Assess profitability, liquidity, and efficiency. Final score: 4/9.

Short Analysis - Piotroski Score: 4

We're running American Eagle Outfitters (AEO) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is a method to assess a company's financial health through 9 criteria focusing on profitability, liquidity, and efficiency. American Eagle Outfitters (AEO) scored 4 out of 9. It shows strong profitability with a positive net income and cash flow. However, it struggles with a low return on assets, declining gross margin, and decreased asset turnover. The company successfully reduced its leverage but faced issues with the current ratio and share dilution. Overall, AEO's financial position is mixed with some strengths and noticeable weaknesses.

Insights for Value Investors Seeking Stable Income

Given AEO's Piotroski F-Score of 4, the company's financial health and operational efficiency appear mediocre. As an investor, this stock may not stand out due to its mixed performance—strong net income and cash flow contrasted by sagging profitability measures like the Gross Margin and ROA. It's advisable to look into other better-performing stocks unless you have bullish insights about AEO's future improvement or growth strategies. Diversification and deeper analysis of other stocks or sectors might offer better opportunities for investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of American Eagle Outfitters (AEO)

Company has a positive net income?

Net income evaluates a company's profitability measured as the difference between revenues and expenses. A positive net income means the company is profitable, a key metric in fundamental analysis.

For American Eagle Outfitters (AEO), the net income in 2023 was $125.136 million, which is positive. This indicates a profitable year for AEO, thereby earning it 1 point in the Piotroski score. Historically, the company's net income has shown volatility with bouts of negative income in 2019 and 2020, but the positive income in 2021, 2022, and 2023 suggests a rebound. This trend is good for the criteria as it reveals AEO's ability to regain profitability after challenging years.

Company has a positive cash flow?

Cash Flow from Operations, or CFO, indicates the amount of cash a company generates from its regular operational activities and is crucial for evaluating liquidity and financial health.

American Eagle Outfitters (AEO) demonstrates a positive Cash Flow from Operations in 2023, amounting to $406.296 million. This constitutes a significant improvement from the previous year’s $303.671 million. The positive CFO contributes 1 point to the Piotroski score, indicating positive financial health and operational efficiency. Over the last 20 years, the trends exhibit consistency in generating positive Cash Flows with notable highs, affirming robust operational management. Overall, this trend is excellent for AEO as positive CFO levels buttress its inherent capability to reinvest in the business, pay down debt, and generate dividends.

Return on Assets (ROA) are growing?

The criterion examines the year-over-year change in ROA to gauge profitability.

American Eagle Outfitters (AEO) exhibited a decrease in its ROA from 0.1162 in 2022 to 0.0347 in 2023. This significant decline indicates a drop in its ability to generate profit from its assets. Consequently, no point is awarded for this criterion. Historically, the company's ROA has shown fluctuations, but 2023 saw one of the lowest levels. Contrast this with the industry median, which has also seen variations but generally remains higher than AEO's figures.

Operating Cashflow are higher than Netincome?

Operating cash flow should ideally be higher than net income to ensure that the company is generating sufficient cash from its core business operations, enhancing financial stability.

American Eagle Outfitters (AEO) shows an operating cash flow of $406 million, significantly higher than its net income of $125 million for 2023. This indicates strong cash generation ability from its core operations, which is a positive sign for overall financial health. Over the past two decades, AEO's operating cash flow and net income have varied, but the higher operating cash flow in 2023 compared to net income is an encouraging indicator.

Liquidity of American Eagle Outfitters (AEO)

Leverage is declining?

Change in leverage assesses if a company can meet its long-term obligations and the efficiency of its capital structure.

American Eagle Outfitters (AEO) saw a decrease in leverage from 0.3949 in 2022 to 0.3011 in 2023. This decline is indicative of a stronger balance sheet and shows that the company reduced its reliance on debt financing. Numerically, the leverage ratio decreased by approximately 23.75%, which is a positive sign of improved financial health. Historical data shows varied leverage, with a significant rise post-2019, leading to the most recent decrease.

Current Ratio is growing?

The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year.

The Current Ratio of American Eagle Outfitters (AEO) decreased from 1.6573 in 2022 to 1.4308 in 2023. This indicates a less favorable position in terms of liquidity, as the company's ability to meet short-term liabilities has weakened. Over the past 20 years, AEO's Current Ratio has fluctuated, but the 2023 ratio is below the industry median of 1.4722, further underscoring the liquidity challenge. Therefore, AEO does not earn a point for this criterion as the trend is negative and the Current Ratio has decreased.

Number of shares not diluted?

Change in Shares Outstanding is a crucial criterion as it reflects whether the company is diluting its shares, which can affect shareholder value.

The Outstanding Shares for American Eagle Outfitters (AEO) have increased from 168.16 million in 2022 to 181.78 million in 2023. This increase of approximately 8% suggests that the company has likely issued more shares, which dilutes the value for existing shareholders. When considered along the trend data from the last two decades, notable increases in Outstanding Shares were observed in 2004, 2005, and 2007, followed by a generally decreasing trend until 2023. This negative indicator signifies that for the criterion of Change in Shares Outstanding, American Eagle Outfitters scores 0 points.

Operating of American Eagle Outfitters (AEO)

Cross Margin is growing?

Gross Margin measures the difference between revenue and the cost of goods sold. It reflects pricing strategy, cost efficiency, and overall profitability.

The Gross Margin for American Eagle Outfitters (AEO) decreased from 0.3975 in 2022 to 0.3498 in 2023. This represents a decline of approximately 4.77 percentage points. This trend is negative for the company's overall profitability, indicating that the cost of goods sold has risen faster than the company's pricing power. Over the past 20 years, AEO's Gross Margin has fluctuated, reaching its highest point in 2007 at 0.4797 and its lowest in 2020 at 0.2951. When compared to the industry median Gross Margin for 2023, which stands at 0.381, AEO is below the median, suggesting it is underperforming relative to the industry. Therefore, AEO receives 0 points for this criterion.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales revenue; it is crucial for understanding operational effectiveness.

American Eagle Outfitters (AEO) saw its Asset Turnover slightly decrease from 1.3878 in 2022 to 1.3846 in 2023. While the change is marginal, it indicates a slight decrease in efficiency. Adding the long-term historical context shows significant variability over the past 20 years, with peaks as high as 2.1699 in 2019. This decline means that for 2023, AEO would not earn an additional point under the Piotroski F-Score for this criterion, keeping the score at 0.