American Eagle Shares Soared: 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 teen-apparel retailer American Eagle (NYS: AEO) popped 10% on Monday after Chairman Jay Schottenstein disclosed a $1 million purchase.

So what: As legendary fund manager Peter Lynch once said, "Insiders might sell their shares for any number of reasons, but they buy them for only one: They think the price will rise." Given the relatively large size of the buy, coupled with Schottenstein's track record of timely purchases, investors are naturally interpreting the news as an extra-strong buy signal.

Now what: Don't let today's pop keep you from looking into the stock. American Eagle is still down about 20% over the past six months, boasts a juicy 4% dividend yield, and continues to trade at a clear P/E discount to main rival Abercrombie & Fitch (NYS: ANF) . Fools know never to follow insiders blindly into a stock, but Schottenstein's big buy is nice confirmation that the shares are at least a decent value.

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At the time thisarticle was published Fool contributor Brian Pacampara owns 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's disclosure policy always gets a perfect score.

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