Is Abercrombie & Fitch Still A Buy After Its 19% July Surge?

Forbes

6 days ago

Abercombie & Fitch logo is seen at the store in London, Great Britain on July 10, 2025. (Photo by ... More Jakub Porzycki/NurPhoto via Getty Images)
Abercrombie & Fitch (NYSE: ANF) has been thriving—up 19% in July and soaring 6% on July 28 alone. This latest increase was driven by a JPMorgan upgrade to 'Overweight,' with analysts highlighting robust retail momentum in July and a rise in consumer confidence. The firm has elevated its price target to $151, implying additional upside from current prices. This optimism is well-founded. U.S. retail sales improved by 0.6% in May, which is three times more than the anticipated forecast, while jobless claims dropped, indicating strength in the labor market. Adding in Abercrombie's impressive Q1 earnings, it's clear the market has justifiable reasons to trust that the company's transformation narrative is still unfolding.
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Fundamentals: Strong Growth, Affordable Stock, Sound Foundation
Abercrombie is not only benefiting from positive macro trends—but it's also performing well. In Q1, the company reported net sales of $1.1 billion (+8%), surpassing expectations, with EPS of $1.59 compared to a consensus of $1.36. It has raised its full-year sales growth guidance to 3–6%, although it slightly reduced EPS forecasts due to tariff issues. Despite its impressive performance, the stock appears undervalued, trading at a P/S of 1.0, P/E of 9.7, and P/FCF of 11.7—all significantly below S&P 500 averages. Revenues have increased at a 10.6% CAGR over the previous three years and have risen 12.5% year-over-year in the past 12 months, significantly outperforming the wider market. No longer merely a legacy mall brand, Abercrombie has redefined itself for the digital age and is connecting with Gen Z shoppers.
The company's balance sheet brings an additional level of assurance, exhibiting a debt-to-equity ratio of 21.1% (better than the S&P average) and a cash-to-assets ratio of 19.6%—almost three times that of the index. Abercrombie is well-financed and poised to reinvest or withstand market turbulence.
Weakness: Margins & Risk of Downturn
Even with strong growth, ANF's profitability lags behind the broader market, with an operating margin of 14.2% in the last four quarters compared to 18.3% for the S&P 500, a net margin of 10.6% against 11.9%, and an operating cash flow margin of 12.2% relative to 19.8%. The stock has also exhibited vulnerability during market downturns, plummeting 70% during the 2022 inflation crisis and 83% in the 2008 financial meltdown. Although it ultimately rebounded in both instances, the historical volatility remains a significant risk for investors.
A Smarter Approach to Navigate the Market
Abercrombie & Fitch presents a rare opportunity in today's market: strong revenue growth, attractive valuation multiples, and a robust balance sheet. While its margins may not match the broader market and the stock has historically struggled during downturns, ANF appears to be an undervalued growth opportunity—especially if consumer spending remains steady and inflation continues to decrease. However, investing in a single stock involves inherent risks, and a diversified strategy may provide greater stability. You might consider exploring the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stock benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver strong returns for investors. What's the reason? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided an agile strategy to optimize returns during favorable market conditions while curbing losses during downturns, as outlined in RV Portfolio performance metrics.