Urban Outfitters Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of retailer Urban Outfitters (NAS: URBN) sank as much as 13% on Tuesday after its current-quarter guidance disappointed Wall Street.

So what: Urban Outfitters' second-quarter profit managed to top expectations, but disappointing sales in the first half of August indicate some strong short-term tailwinds. Investors seem particularly concerned that demand for its highest-priced brand, Anthropologie, will remain weak amid continued economic and political uncertainty.

Now what: I wouldn't be so quick to pounce on today's plunge. Teen fashion is notoriously fickle, but with a much higher price-to-sales ratio than rivals like bebe stores (NAS: BEBE) and Gap (NYS: GPS) , the shares seem extra-vulnerable to a consumer pullback. While Urban Outfitters is certainly worth following given its historically strong returns on equity and debtless balance sheet, I'd require a much bigger margin of safety before pulling the trigger.

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At the time thisarticle was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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