Kissing My Shares in American Eagle Goodbye

After massive insider selling and an 85% gain on my investment since mid-January 2006, I have sold all of my American Eagle Outffiter (AEOS) shares.

I felt that I had a signifigant margin of safety on my original purchase in the $23 to $24/share range. The P/E was about 12 and the Chairman of the Board, Jay Schottenstein was buying the stock hand over fist. In addition, the company held no debt and had a ton of cash on hand which convinced me this was an investment I could sit and wait on.

The company still has a ton of cash (about 5.40/share) and no debt but the stock appears to be reaching the overvalue point. I am not at ease with clothing retailers unless they are trading at a step discount due to the unstable nature of global fashion tastes. One misstep in inventory selection and the stock can go tumbling. Furthermore, the success of the American Eagle's new concept Martin + OSA is still up in the air. At a P/E of 21 and with heavy insider selling I have decided to look elsewhere for value.

AEOS 1-yr chart:

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