Abercrombie and Fitch’s 13.1% return over the past six months has outpaced the S&P 500 by 6.8%, and its stock price has climbed to $79.65 per share. This run-up might have investors contemplating their next move.

Following the strength, is ANF a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Is Abercrombie and Fitch a Good Business?

Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE: ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.

1. Surging Same-Store Sales Show Increasing Demand

Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.

Abercrombie and Fitch has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 10%.

2. Elite Gross Margin Powers Best-In-Class Business Model

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Abercrombie and Fitch has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 62.8% gross margin over the last two years. That means Abercrombie and Fitch only paid its suppliers $37.23 for every $100 in revenue.

3. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Abercrombie and Fitch’s EPS grew at 481% compounded annual growth rate over the last three years, higher than its 12.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Final Judgment

These are just a few reasons why we think Abercrombie and Fitch is a great business, and with its shares beating the market recently, the stock trades at 7.8× forward P/E (or $79.65 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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