Over the past six months, Abercrombie and Fitch’s stock price fell to $103.25. Shareholders have lost 5.6% of their capital, which is disappointing considering the S&P 500 has climbed by 5.3%. This may have investors wondering how to approach the situation.

Given the weaker price action, is now the time to buy ANF? Find out in our full research report, it’s free.

Why Does Abercrombie and Fitch Spark Debate?

Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE: ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.

Two Positive Attributes:

1. Surging Same-Store Sales Show Increasing Demand

Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.

Abercrombie and Fitch has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 14.8%.

2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Abercrombie and Fitch has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 10.7% over the last two years.

One Reason to be Careful:

Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Abercrombie and Fitch’s sales grew at a tepid 5.7% compounded annual growth rate over the last six years. This wasn’t a great result compared to the rest of the consumer retail sector, but there are still things to like about Abercrombie and Fitch.

Final Judgment

Abercrombie and Fitch has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 10× forward P/E (or $103.25 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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