The G-Man Initiates Coverage Of AEOS With A "Run Like Hell" Rating
By Goran Yordanoff
February 15, 2001 5:30 PM EST
I want to make it clear that I am merely trying to bring to light the recent activity in one of the apparel retailers that has enjoyed a 500%+ run in the past seven months. When you look through the entire sector of apparel stocks and retailers, you will see a similar trend of high volume insider selling over the course of the past few months. Let's take a look at a few of them:
The first of which is American Eagle Outfitters (AEOS). Yesterday, the Dow Jones Newswire posted a summary of insider trading activity for this stock.
It read as follows:
FILER: SCHOTTENSTEIN, JAY L.
TITLE: Chairman of the Board
TRANSACTION: Sale: 1,700,000 -- 01/05/01-01/11/01 -- $46.27-$47.96
OWNERSHIP: 8,695,845
FILER: RETAIL VENTURES INC.
TITLE: Beneficial Owner
TRANSACTION: Sale: 1,000,000 -- 01/05/01-01/11/01 -- $46.27-$47.96
OWNERSHIP: 4,855,450
FILER: HOFFMAN, GERALDINE SCHOTTENSTEIN
TITLE: Beneficial Owner
TRANSACTION: Sale: 800,000 -- 01/05/01-01/11/01 -- $46.27-$47.96
OWNERSHIP: 7,931,109
FILER: DESHE, ARI
TITLE: Director and Beneficial Owner
TRANSACTION: Sale: (Option Related) 210,500 -- 01/05/01-01/11/01 -- $46.27-$49.17
OWNERSHIP: 4,015,779
FILER: KOLBER, GEORGE
TITLE: Officer and Director
TRANSACTION: Sale: 59,628 -- 01/05/01-01/30/01 -- $46.27-$96.00
OWNERSHIP: 256,878
FILER: LEEDY MICHAEL J
TITLE: Vice President
TRANSACTION: Sale: (Option Related) 42,417 -- 01/12/01 -- $50.03-$50.04
OWNERSHIP: 20,000
FILER: DOOLAN, MARTIN P
TITLE: Director
TRANSACTION: Sale: (Option Related) 11,500 -- 01/09/01 -- $48
OWNERSHIP: ZERO
FILER: MARAKAS, JOHN L
TITLE: Director
TRANSACTION: Sale: (Option Related) 19,500 -- 01/31/01 -- $57.25-.88
OWNERSHIP: 26,500
In addition, there were several corporate sellers who blew out of much smaller quantities of stock ranging from 4,000 shares to 10,000 shares. I only listed the larger block sellers above.
If these insiders are selling such enormous quantities of their own stock, why should we be buying it?
The total of these insider sales for the past month is around 3.8 million shares of stock. The float on AEOS has been 12.1 million shares with 46.44 million shares outstanding. Keep in mind that any insider sales come from the "shares outstanding" number and are added to the float once they are sold on the open market.
As you can see on the chart below, AEOS has risen nearly 500% in the past seven months. Yet after this incredible run and excessive insider sales, we have not heard any warnings or negative comments from the analyst community. Makes you wonder, eh?
The chart below clearly displays the red carpet being laid out for the 3.8 million shares of AEOS that were sold last month. There were millions more sold by insiders during the prior six months.
The only slightly cautionary comments I have found concerning AEOS were issued by analyst Janet Joseph Kloppenburg of Robby Stephens:
"AEOS shares currently trade at 24.6x our $2.37 F2001 EPS estimate, a significant premium to the specialty apparel peer group's 16-17x F2001 P/E multiple...At the shares' current premium valuation, the stock appears to be fully discounting the upside potential that we believe AEOS's current business momentum is capable of generating. Therefore, we believe the shares are best suited for longer-term oriented investors, given that near-term appreciation may not be significant."
Still, this analysts does not address the unusually high insider selling activity that has taken place with the stock.
The recent moves up by stocks like AEOS have been somewhat counterintuitive in the face of mounting layoffs, continuing slowing in the economy, falling consumer confidence, dismal holiday sales, and record consumer debt. Nevertheless, it is the job of investment banking and brokerage arms to work hand in hand in achieving the best possible results for their corporate clientele. This similar pattern of insider selling into retail buying is seen throughout the retailing and apparel sectors as evidenced by stocks like (TLB), (MAY), (MW) and (ANF).
From a fundamental perspective, although AEOS and other specialty retailers have been issuing news releases about their increases in sales totals, we have not heard any positive comments about the integrity of their profit margins. In fact, it is widely known that retailers across the board deeply discounted their merchandise in December and January in order to decrease their inventories.
This appears to be the same dilemma that has plagued the personal computer manufacturers. Sales numbers are healthy, but profit margins have suffered considerable due to discounting.
Hey, AEOS insiders and analysts, The Crocodile Hunter (Steve Irwin) just called. He wants all of you on his "World's Most Deadliest Snakes" show. |
