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Kerrisdale Capital Management  

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  • Aeropostale's Valuation Seems Too Cheap [View article]
    There's some good discussion in this comments section. I think both the long and the skeptics have made good points. Albert Babayev has made some worthwhile points, and I think our differences in opinion about ARO being an attractive long is that we have differing opinions on whether ARO's fashion tastes are "junk". He thinks the clothes are junk while I think ARO's clothes are sufficiently fashionable. If he's right, ARO's SSS growth will be negative over the next few years, and margins drop down to the 14%-15% level. In that case, the stock will either hover at its current level or go down maybe 30% or so.

    If their clothes aren't junk, maybe you see ARO margins fall to 16% to 18% level and same-store sales hit breakeven levels. In that case, I think the stock has upside, because of its current low valuation.

    At the end of the day, I don't have a good enough grasp on just how junky or fashionable the brand's clothes are, and will be in 2011/2012. My research indicates that the clothes are "cool" enough. It's tough to tell just how cool they are, and how cool they'll be over the next few years. But I think the probabilities of this investment working out are favorable, given the current cheap multiples off of 2012 consensus numbers, which already anticipate declining margins and mediocre growth.
    Jan 7, 2011. 02:19 PM | 1 Like Like |Link to Comment
  • Aeropostale's Valuation Seems Too Cheap [View article]
    That's fair. We own some AEO as well.
    Jan 7, 2011. 02:05 PM | Likes Like |Link to Comment
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