Sydney Sweeney Just Launched a Meme Rally in American Eagle. Should You Buy AEO Stock Here?
American Eagle (AEO) shares soared as much as 20% on Thursday after the clothing retailer said actress Sydney Sweeney will be the face of its fall campaign.
Retail investors latched onto the Sweeney news, partly because short interest in the NYSE-listed firm stood at a whopping 13.5% heading into today, making it a prime candidate for short squeeze.
While American Eagle stock has relinquished some of its intraday gains in recent hours, at market open, it was up nearly 30% versus its year-to-date low set in mid-June.
Caution Warranted in Buying American Eagle Stock
Disciplined investors should approach today’s rally in AEO shares with caution as it was driven mostly driven by celebrity buzz and meme stock phenomenon instead of fundamentals.
American Eagle did not issue a financial or operational update to justify such a sharp surge in its stock price, neither did it receive bullish coverage from a Wall Street analyst on Thursday.
Therefore, once the hype fades, American Eagle stock could retrace just as quickly, particularly since its struggling with an earnings contraction.
In its current financial quarter, the Pittsburgh-headquartered firm is expected to earn just $0.20 on a per-share basis, down significantly from $0.39 a share in the same quarter last year.
Jefferies Analyst Remains Bearish on AEO Shares
Chasing the meme-driven momentum in American Eagle shares may be a gamble also because “ongoing headwinds facing the consumer could impact the company’s top-line growth and margin performance over the next 6-12 months,” according to Jefferies analyst Corey Tarlowe.
In his latest research note, he cited execution challenges and product assortment issues as well for his skeptical stance on AEO stock.
Jefferies currently has a “Hold” rating on American Eagle Outfitters with an $11 price target indicating potential downside of more than 3.0% from current levels.
How Wall Street Recommends Playing American Eagle
Long-term investors should avoid jumping into AEO shares amid the meme stock frenzy as they’re not in favor with other Wall Street analysts either.
According to Barchart, the consensus rating on American Eagle stock currently sits at “Hold” and the mean target of $11.27 is roughly in line with its current trading price.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.