Abercrombie & Fitch (ANF) just doubled in a year. The next double couple take some time, and I’ll get to how long that should take later. Meanwhile, here’s a look at the before and after shots:
Before the Double
Here is a one-year chart of ANF during the 2010’s third quarter (Q3). The company just had its first “good” quarter for profit growth in a year (note the 367% profit growth on the bottom).
Abercrombie was a fairly mature company and ANF had a P/E of 21, so the stock wasn’t a great bargain — especially considering the estimated Long Term Growth Rate was only 17%. I think the P/E is fair, the stock just wasn’t on sale (so I didn’t buy it).
Earnings Then and Now
What I liked about ANF then was the profit growth that was expected during the next three years. So this is what the earnings per-year estimates looked like in 2010 Q3:
2007 5.20 *record profits in green, anything less is red
2008 3.05
2009 1.12
2010 1.75e
2011 2.48e
2012 3.37e
Profits were set to almost double in two-years (from $1.75 to $3.37 2010-2012). If the stock can get the same P/E and double profits then the stock would double too (Sharek’s Rule of 72).
After the Double
Here’s ANF today. Profits came in at $2.05 last year, above the $1.75 estimate. This helped push the stock up. Also a strong comsumer spending environment helped Retail stocks, ANF had wind at its sails. The P/E is exactly the same as it was earlier — 21 — so the stock doubled as profits doubled (more-or-less).
Bottom Line
Believe it or not, ANF might have another double coming. Here’s 2011-2013 estimates:
2011 3.18e
2012 4.66e
2013 6.30e — 98% higher than 2011 estimates
Profits are expected to climb from $3.18 to $6.30 — 98% higher in two years. So if the stock keeps the 21 P/E then 21 x $6.30 = $132 stock — almost another double. Only this time it looks like two years, instead of one.
