Aeropostale Shares Surged: 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 Aeropostale (NYS: ARO) popped 20% on Thursday after raising its third-quarter earnings guidance.

So what: Aeropostale's stock has been battered on worries over mounting competition, but today's huge forecast boost -- EPS forecast of $0.27-$0.28 versus a prior view of $0.09-$0.15 -- suggests that its margins are finally starting to firm up. Conversely, chief rival Abercrombie & Fitch (NYS: ANF) -- whose shares have been strong over the past year -- fell 20% today on sluggish European sales, suggesting the wide valuation gap between the two stocks is beginning to close.

Now what: "While we delivered third-quarter earnings that exceeded our previously issued guidance, we remain cautious given industrywide costing pressures and the current retail environment," said Aeropostale CEO Thomas Johnson. Of course, with the shares still down a good 30% over the past six months alone and trading at single-digit P/E, it seems that much of the risk continues to be baked in the price. If management can keep fighting off market share losses, Aeropostale has plenty of more room to run.

Interested in more info onAeropostale?Add it to your watchlist.

At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of Aeropostale. 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.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.