Re: ANF, I've watched it fall since it hit 40. Around 20, I thought really hard. Went to a store. Turned around and walked out immediately. Too trendy.
And therein is the key to its high ROE/ROA. It has been "in" fashion. The problem with all these chains is that they can fall out of fashion. ANF is a century-old name that decided to get trendy in 94-95. It has worked. But the problem is the survivability of the trend and concept. So I discount the ROE/ROA numbers very severely. Especially when I think how hard those numbers will get hit in a recession.
That said, I think the company is no Merry Go Round. It produces cash at or above earnings each quarter. The clothes are attractive, and if I could afford them I'd like to own some. Management has really thumbed its nose at Wall Street, which I like. They appeared to be very focused on the long-term, and are terse with the Street out of spite for the Street's short-term focus. But then this last fall they go and have an illegal private analysts' meeting that basically blows any proof of this theory out of the water (along with the stock price).
That all said, I am buying ANF. Not in the portfolio I run so visibly on my web site - yet. But in several other portfolios. In the 11-12 range, I feel there is a bottom. My interest perked when the stock jumped on two downgrades. Finally, the downgrades came. My wife was the one who alerted me: "You always say wait for the downgrades. Well, they came."
The company is miniscule relative to something like the Gap and has much room to grow in terms of store numbers. It also may benefit from Gap's fashion missteps for all I know. For now, the earnings yield just seems to great to pass up. Especially with a growing coupon.
Mike |
