Why is Abercrombie & Fitch Co. (NYSE:ANF) Currently Undervalued?
Abercrombie & Fitch Co. (NYSE:ANF) recently announced its quarterly earnings, which did not meet expectations as the company reported a net decline in profits. Many investors are currently shorting the stock, which has led to a supply and demand imbalance triggering a significant decline in the company’s stock price.
Abercrombie & Fitch’s Q3 earnings disappointed triggering a sell-off of the stock.
The company is executing a turnaround strategy that could restore shareholder value.
The physical retail industry is going through a transformation, but is not dying.
However, the company is currently in the midst of a turnaround strategy, which if properly executed could lead to the company’s stock price rising in the near future. If this was to occur, the short-sellers would have to buy the shares they had shorted, which could further boost the company’s stock price.
As a specialty retailer, Abercrombie & Fitch is not doing as badly as other retailers such as Nordstrom, Inc. (NYSE:JWN) and Urban Outfitters, Inc. (NASDAQ:URBN), which recently recorded significant declines. ANF is currently trading at a massive discount to its book value, which might make the company a good target for value investors with long-term investment goals.
ANF’s turnaround strategy is based on four pillars, which include closing down underperforming stores, repositioning the brand, selling directly to customers through an omnichannel strategy, as well as its loyalty program. The company’s management is focused on successfully executing this strategy, which could revitalize the company’s stock price and generate more value for its shareholders.
The company’s current financial performance is slightly impressive given that despite its declining profits, ANF still has a positive net income. The company currently has a net book value of about $17 per share, yet it is trading at about $11 per share, which indicates that it is trading at a significant discount.
Therefore, it is quite clear that ANF is currently undervalued because of the negative investor sentiment towards companies in the retail industry with many believing that the physical retail industry is dying. However, as if to prove the resiliency of the brick and mortar retail industry, Amazon.com, Inc. (NASDAQ:AMZN) has opened several physical retail stores across different cities in the USA.
I believe that the physical retail industry is being transformed by the impact of Amazon.com, but the industry is not going to die. Physical retailers such as ANF who revamp their operating strategies to adapt to the changing retail landscape will thrive and remain profitable in future.
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