What Happened:

Shares of young adult apparel retailer American Eagle Outfitters (NYSE:AEO) fell 12.6% in the pre-market session after the company reported first-quarter earnings results and provided revenue and quarterly operating income guidance, which missed Wall Street's estimates. On the other hand, American Eagle exceeds analysts' gross margin and EPS expectations this quarter. Overall, we think this was a strong quarter that should satisfy shareholders, but investors were likely expecting more, with competitor Abercrombie & Fitch (NYSE:ANF) posting a blowout quarter earlier.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy American Eagle? Access our full analysis report here, it's free.

What is the market telling us:

American Eagle's shares are somewhat volatile and over the last year have had 10 moves greater than 5%. But moves this big are very rare even for American Eagle and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 15.6% on the news that the company reported third quarter results and provided operating income guidance for the full year that fell short of expectations. On the other hand, it beat analysts' revenue and EPS estimates this quarter, driven by better-than-expected same-store store sales growth at both American Eagle and Aerie. The stock is down, suggesting expectations for the year ahead were high heading into the quarter and the earnings beat was already priced into the stock.

American Eagle is up 8.9% since the beginning of the year, but at $23.05 per share it is still trading 12% below its 52-week high of $26.20 from March 2024. Investors who bought $1,000 worth of American Eagle's shares 5 years ago would now be looking at an investment worth $1,302.

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