Simple Concepts Research Group

Are Aaron’s (NYSE: AAN) Fundamentals Attractive To Investors?

by | Dec 30, 2021 | Stock Picks

Aaron’s (AAN) Company Overview & Stock Price Forecast

This article provides a brief analysis and stock rating for Aaron’s (AAN) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.

Aaron’s Company Fundamentals

AAN Stock Rating

Stock Price Target: $39.17

In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for Aaron’s in comparison to the Building Supply industry and the S&P 500.

Aaron’s is a Small Cap company with a Market Cap of $780.9M.

How are investors using Aaron’s earnings yield to assess the company?

Aaron's (AAN)_ Earnings Yield in Comparison to the Building Supply Industry, S&P 500 and 10 Year Treasury Rate

The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).

The current earnings yield for Aaron’s is 138.89%, in comparison to 3.36% for the S&P 500 and 1.50% for the 10-year treasury bond. The median earnings yield for the Building Supply industry is 5.58%.

What does Aaron’s Price-to-Earnings Ratio (P/E) tell investors about the company?

Aaron's (AAN)_ Price-to-Earnings, Price-to-Sales and Price-to-Book Value in Comparison to the Building Supply Industry and the S&P 500

The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings. 

Aaron’s is currently trading at a P/E of 8.81. The P/E for the Building Supply industry is 17.04 and the P/E for the S&P 500 is 29.77.

What is the current Price-to-Sales Ratio (P/S) for Aaron’s?

The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.

Aaron’s is currently trading at a P/S of 0.48. The P/S for the Building Supply industry is 1.84 and the P/S for the S&P 500 is 3.23.

How does Aaron’s Price-to-BookRatio (P/B) compare to the Building Supply industry?

Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.

Aaron’s P/B ratio is 1.19. The P/B for the Building Supply industry is 40.07 and the P/B for the S&P 500 is 4.87.

How attractive is Aaron’s Return on Invested Capital (ROIC) to investors?

Aaron's (AAN)_ Return on Invested Capital in Comparison to the Building Supply Industry and the S&P 500

Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.

Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.

Aaron’s ROIC is currently -36.30% in comparison to 23.85% for the Building Supply industry and 8.60% for the S&P 500.

Aaron's (AAN)_ Price Target & 52-Week Price Range

How has AAN stock performed over the past year? What is the current analyst price target?

Over the past 52 weeks, Aaron’s has traded between the range of $16.38 and $37.49.

The current Analyst Price Target for Aaron’s is $39.17.

What is Aaron’s YTD Performance in comparison to its industry and the total market?

The year-to-date (YTD) performance is the amount of profit/loss realized by a stock since the first trading day of the current calendar year. 

The YTD performance for Aaron’s is 30.75%. The Building Supply industry has a YTD performance of 45.71% in comparison to the YTD S&P 500 performance of 27.61%.

Aaron's (AAN)_ YTD Performance in Comparison to the Building Supply Industry and the S&P 500

Recent Financial Results

  • Total Revenues of $452.2M, compared with $441M for the third quarter of 2020 (an increase of 2.5%)
  • Net earnings for the third quarter of 2021 were $24.3M compared to $32.6M in the prior year period
  • Adjusted EBITDA of $53.6M for the third quarter of 2021, compared with $64.3M for the same period in 2020 (a decrease of $10.7 million, or 16.6%)
  • Returned $37.5M to shareholders through repurchases

Stock Price Target: $39.17

Company Overview

AAN Stock Rating

The Aarons Company provides lease-to-own and purchase solutions. The company engages in direct-to-consumer sales and lease ownership of furniture, home appliances, electronics, and accessories through its approximately 1,300 Company-operated and franchised stores in the US and Canada, in addition to its its e-commerce platform. The company also manufactures and supplies bedding and upholstered furniture.

As of December 2020, the company had 1,092 company-operated stores and 248 independently-owned franchised stores. Aaron’s was formerly known as Aaron’s SpinCo, Inc, and was founded in 1955. The company is headquartered in Atlanta, Georgia; the current CEO is John W. Robinson III.

Be sure to add Aaron’s Company (AAN) to your Watch List and if you haven’t done so already, check in on the performance of our Current Portfolio. Keep it simple and always do your due diligence.

This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.