Get Airborne with Aeropostale

Aeropostale, Inc. (ARO) shares are up more than 45 percent in 2008 despite a drop in consumer spending and a rise in inflation. The clothing retailer saw its same-store sales rise 13 percent in July and raised its second-quarter profit forecast, citing better than expected sales and gross margins. The performance comes in sharp contrast to competitors like Ambercrombie & Fitch (ANF) that reported falling same-store sales and new pressures on margins, and demonstrates strong brand strength despite the poor economy.

Investors bullish on Aeropostale during the long-term may want to consider LEAPS options. Currently, the 35 January ‘10 LEAPS are trading at a $9.00 premium. The breakeven on any position is therefore $43.71, or 25.9% higher than the current market price, within the next 515 days. Considering the stock has already moved more than 45 percent in 2008 and an economic recovery may be just on the horizon, many experts view these long-term options as a bargain at these levels.A

Aeropostale stock appears reasonably priced in today’s market with a PEG ratio of just 1.04. However, two analysts recently downgraded the stock saying that there may be better better entry points for the stock. The analysts also expressed concerns that year-ago comparisons will soon get more difficult, but noted there is still nothing wrong fundamentally with the company. Essentially, they are betting that there will be a pullback in which to add more shares later.

Investors should also carefully watch Aeropostale’s upcoming second-quarter earnings numbers to be announced on August 21st. Many are expecting the results to come in above last year, but some are concerned that expectations may be too high. The declining economy also has some concerned that the outlook would be lower-than-expected. As a result, prudent investors may want to consider waiting until after the results before purchasing a stake in the retailer.

Visit LEAPSInvestor.com for more information on this LEAPS strategy.

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