Remember Buffet’s quote, it goes something like this. The stock market is a voting machine in the short-term; nevertheless, the long-term , it has proven to be a weighing machine(companies with strongest fundamentals will go up, while more speculative investments will show up as losers). The reverse is said, in the short-term, popularity and NOT rational investing principles guide the market.

Brand new to investing outside the mutual fund arena. I have to say, this is one of the best websites for helping me understand this style of investing (besides having lunch with Warren, but he isn’t returning my calls yet)

I was looking at AEO and have completed the analysis on the excel spreadsheet you guys use. (Fantastic resource by the way) With the stock now in the $13.50 neighbourhood, it looks almost too good to be true!! And that leads me to the question. Whats up? When it broke below $20, it seems everyone here (ok, almost everyone) was anxious to buy (and I undertsand why) But I don’t hink anyone seemed to think it would drop this low. Can someone explain if there is a GOOD reason why it has gone so low…or is Mr Market just behaving irrationally again?

Thanks..love the site!!

Darren

I am going to look at 2006 & 2007′s cash flows & operations in a more thoughtful way, soon. I’ll see what I think after I come to a more accurate picture of their FCF growth from 2006-2007.

I am probably most thrown off by the loss of shareholders’ equity. I don’t think I understand how that happened, yet. Is it just because they have a smaller amount of cash assets due to the capital expenditures?

Err.. I’ll post whatever questions and results I end up with

I’ve been poring over their annual reports lately since the price is so damn cheap, and one thing that caught my eye in their annual report was the realization of $184 million worth of trading securities that were sold. This is obviously a VERY one time gain and should be omitted from the cash from operating activities. Doing that would yield roughly $565 million as opposed to $749 million in cfoa. Free cash flow drops down to roughly $339 million, which is $45 million LOWER than 2006. Keep in mind though, that they are spending an inordinate amount of cash on their brand new, shiny headquarters and distribution facility lately, which skews the cash flow numbers. They really did have a great year operational-wise in 2007. Perhaps we should revise those 2007 numbers to come up with a more linear growth rate. Although, 2008 should more than offset it.

SSS have dropped consecutively, while competitor ARO’s have been increasing. I think this kind of hurts the economic downturn angle.. Or is it reasonable to point to ARO’s lower prices/constant sales as benefiting them during this economic situation?

Just looking at AEO’s SSS, and if we just consider march 2007 an anomaly due to its massive SSS growth(20%, I read), SSS for March 2008 were 108% of SSS in march 2005. So they haven’t exactly shrunk since 2005 and have infact grown (slowly); is this a reasonable way of looking at it?

Thanks for any answers!

What is a good business if not one that can thrive in good times and survive in bad times? Is AEO a good business? The answer to that lies in another question: Where will AEO be in five years? Answer that, and you’ll know whether or not you should be investing today.

(And it is perfectly fine for some to say yes and invest, and for others to say no and stay away. It’s not a question of “right vs. wrong” but “sphere of competence and confidence”.)

Such a typical thing, “Company misses street estimates”.. precipitous drop in price.

I wonder if it will stay at this depressed level for long, or if we’ll have a return to low 20′s in a couple weeks. I hope it stays low for a month.. After CCU(*crosses fingers), I want to move some more back in.

I think that CCU is a good opportunity at 31 atleast, did I miss any of Joe’s steps?

Had a big run up the past 2 days to 34(from 31), now 34.50 in afterhours. I wonder if the spread might be closing for good..

I did the same, but it was very hard to do. For several hours I kept typing in the order and then clicking the cancel button before I was able to click the submit button, lol.

Mike