ASO down 11.5% in a month, now at 6.6x earnings, but the fundamentals are moving the other way

ASO dropped 11.5% over the 20 trading days through Aug 26 and underperformed SPY by 16.4 pts. Rough stretch.

It closed at $43.60 on Sept 2. That’s about 6.6x the midpoint of adj EPS guidance at $6.40 to $6.80. At that multiple, the market is basically betting the recovery fades.

But Q1 showed sales up 6.7%, comps up 2.9%, ecommerce up 17.4% and adj EPS up 22.4%.

There are real risks. Transactions were down 1.5%, and gross margin fell 80 bps, mainly from tariffs. Even with that, earnings grew faster than rev, inventory per store came down and mgmt raised the low end of guidance.

They report again Sept 9. I’m expecting another positive comp and guidance to hold.

That’s the disconnect. ASO doesn’t need to crush earnings. It just needs to show the recovery is still intact. If it does, 6.6x is too cheap.

**Short term call: ASO gains at least 5% on Sept 9 after earnings.**

**6 month call: ASO outperforms XRT by at least 15 pts.**

Starting prices on Sept 2: ASO at $43.60 and XRT at $86.38.

Sept 9 is the first catalyst.