Abercrombie & Fitch stock is up 1,600% but a risky pattern is forming

Abercrombie & Fitch (NYSE: ANF) has become one of the best-performing retailers in Wall Street. It has already surged by over 40% this year, beating the S&P 500 and Nasdaq 100 indices that are up by less than 7%. Altogether, it has soared by over 1,600% from its lowest level in 2022, giving it a market cap of over $6 billion.

Abercrombie & Fitch, the parent company of its eponymous brand and Hollister, has done well in the past few years, helped by its omnichannel strategy and its turnaround strategy.

Its annual revenue has jumped from about $3.6 billion in 2020 to over $4.2 billion in the last financial year. It has also emerged from a net loss of $114 million in 2021 to a profit of $328 million in 2023.

These numbers are part of the company’s transformation. Between 2017 and 2022, Abercrombie & Fitch was focusing on stability and transformation after coming from a period of sluggish growth. 

Between 2023 and 2025, the company’s goal was to deliver profitable growth as it focused on margin expansion. It then hopes to generate over $5 billion in sales in 2025.

The company has also done more things to boost its performance. It has boosted its balance sheet by bringing its cash and equivalents to over $901 million. Also, it has reduced its long-term borrowings to $223 million and slashed its inventories by 7% to $469 million.

Analysts expect that the company did well in the first quarter. The average estimate is that its revenue will be about $937.19 million, up from $836 million in the same quarter in 2023. They also expect that its Q2 revenue will be over $1 billion.

Analysts expect the company’s stock will continue rising in the coming months. The average estimate is that the stock will rise to $139, which is higher than the current $124.90. Some of the most optimistic analysts are from Argus Research, Morgan Stanley, Telsey, and Jefferies.

A key concern is that Abercrombie & Fitch is not a cheap company. It has a forward PE ratio of 16.10, higher than the sector’s multiple of 15.6. Its TTM’s PE multiple of 20 is also higher than the apparel sector average of 18.

ANF chart by TradingView

Turning to the weekly chart, we see that the ANF share price peaked at $140 earlier this year. It then dropped for four straight weeks and has now bounced back to $124.90. Its lowest level in April was along the 23.6% Fibonacci Retracement level. 

The stock has soared above all moved above moving averages while the Percentage Price Oscillator (PPO) has remained above the neutral point. The Relative Strength Index (RSI) has pointed upwards.

Therefore, the outlook for the stock is moderately bullish as buyers target the key resistance at $140, its highest point this year. The risk is that it is forming a double-top pattern whose neckline is at $108.7. That is one of the most popular bearish patterns.

This view will be invalidated if the stock moves above the key point at $140. As such, May 21st will be important as the company will publish its financial results.

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