If you have a teenage son or daughter you have probably shopped at Aeropostale (NYSE: ARO), the mall based retail store that markets and sale casual apparel and accessories to the 14 to 17 year old teenager. Aeropostale operates more than 900 stores in 49 States and Puerto Rico. They also operate roughly 50 stores in Canada.
Aeropostale has everything we like to see in a stock.It has a strong brand. It has a shareholder friendly management as seen by the $300 million share buy back,initiated in November 2010, that represents 13. 7% of Market Cap. Since 2003, Aeropostale has repurchased roughly $850 million shares outstanding. We also notice that Aeropostale has Return on Assets of 30.92 and Return on Equity of 51.65, which is highest among their direct teenage retail store competitors, American Eagle and Abercrombie.
We also show a forward Price Earning Ratio of 9.48 which means we are paying just $9.48 for $1 dollar of future earnings. The company has no debt on its balance sheet and about $240 million in cash. Based on conservative fair value DCF valuation, using 10% growth over the next 5 years, I have a a fair value price of 34.71. This represents a margin of safety of about 30%.
All in all this is a well managed company and the leader in the teenager apparel space. The company has strong financials and appears to be selling below its book value. I would buy about half now then wait for a pull back to buy the other half.
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