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Member: Angela Polinsky %ompany &ame: A'(' P)%

E-mail Address: amp4hs@virginia.edu *i+ker 'ymbol: A'%.)

Date: January !" #$4 ,ating: -old

'ummary: A'(' P)%" a )ondon-based online +lothing retailer" .as one o/ the most su++ess/ul sto+ks in M001s port/olio in #$2. -o.ever" 0 am giving it a 3-old4 rating be+ause although online shopping and the A'(' labels are on the rise" hype and in/lated e5pe+tations have +aused the sto+k pri+e to gro. at unpre+edented rates" and 0 /ear that these lo/ty valuations +oupled .ith slo. gro.th in %hina 6its latest point o/ market e5pansion7 .ill +ause investors to re+onsider their investment and de/late their pre-maturely high e5pe+tations" resulting in a stunt to sto+k gro.th and possibly a do.nturn. 8ey Points to 'upport ,e+ommendation: (verin/lated 'to+k Pri+e A'('1s sto+k pri+e e5perien+ed an enormous" nearly $9#: rise in #$2. -o.ever" 0 .ould argue that the ma;ority o/ this rise .as a result o/ a 3hype /a+tor4 surrounding the gro.ing su++ess o/ +lothing e-+ommer+e. *his is demonstrated in A'('1s P<E ratio: A'(' P<E ,atio 6ttm7: =$ .>> 0ndustry P<E ,atio 6ttm7: = !.!! ?0ndustry estimate a++ording to ,euters@ *his +omparison to the aggregated +lothing industry" to some e5tent" sho.s the s+ale o/ the in/lation problem" but the P<E ratios o/ some more dire+t +ompetitors 6.ho operate primarily in the 3t.enty-something4" trendy +lothing market7 present an even more /o+used +omparison. Arban (ut/itters P<E ,atio 6ttm7: =$>.!B &e5t P)% P<E ,atio 6ttm7: =$B.!B Aber+rombie and Cit+h P<E ,atio 6ttm7: =$2.#! E5pansion into %hina 0n &ovember #$2" A'(' laun+hed a %hinese-language division o/ its .ebsite" .ith "### items available. *he de+ision to e5pand into %hina is due to the +ountry1s surge o/ e-+ommer+e a+tivity 6a gro.th o/ $$.!: sin+e De+ember #$ 7 and its prominen+e as a key player in the Asia-Pa+i/i+ region. A'(' %E( &i+k ,obertson has stated that he e5pe+ts the %hina division to su//er losses in the /irst t.o years" but to gro. signi/i+antly a/ter.ards. 'hort-term operational un+ertainty regarding this %hinese e5pansion pro;e+t prompted Doldman 'a+hs to re+ently do.ngrade A'(' /rom a 3buy4 to 3hold4 rating. 0n+reasing Erand Prominen+e Cashionable publi+ /igures" in+luding ,ihanna" ,ita (ra" Mi+helle (bama" Miranda 8err" 8ylie Jenner" *aylor '.i/t" and doFens o/ others have been regularly .earing 6and photographed .ith7 A'(' brand +lothing. Cashion magaFines" in+luding Gogue" 0n'tyle" Elle" and many others" have also been promoting A'(' as a go-to spot /or /ashionable" 3trendy4 +lothing. GA, H 'tylist )ive %hat (ne o/ A'('1s most valuable attributes is its stellar +ustomer servi+e department" .hi+h o//ers a 3stylist helpline4 to visitors o/ the site .ho have Iuestions about siFes" designers" /ashion trends" or anything A'('related. 0 spoke to one o/ these stylists and asked her about the servi+e and her e5perien+e at A'('. 'he said: *he servi+e has been o//ered /or appro5imately $.9 years" and .as started be+ause +ustomers .anted one-onone attention and immediate ans.ers to their Iuestions 6spe+i/i+ally be+ause A'('1s online presen+e prevented them /rom seeing +lothing in person7. 'tylists are reIuired to be kno.ledgeable about the latest trends" designers" labels" and produ+ts o//ered by A'('. *hey are also en+ouraged to o//er style advi+e and link +ustomers to spe+i/i+ pages on A'('1s .ebsite that they .ould re+ommend /or the +ustomer1s style" needs" and budget. ,isks<Jhat 'igns Jould 0ndi+ate Je Are JrongK *he de+iding /a+tor" in .hether A'('1s sto+k pri+e +ontinues to rise" tapers o//" or starts to /all" is market re+ognition o/ its +urrently in/lated pri+e" and<or +ontinued e5+itement regarding the potential o/ online +lothing retail. Despite slo. progress in %hina" 0 believe A'(' .ill +ontinue to a+hieve large sales gro.th in its more developed markets" .hi+h" +oupled .ith its in+reasing brand re+ognition" +ould indi+ate a rise in the sto+k pri+e. %onversely" i/ investors begin to revalue their estimates o/ A'('1s potential" and market-in/luen+ers" su+h as Doldman 'a+hs" +ontinue to voi+e +on+erns" the overvalued share pri+e +ould begin to /all. Ee+ause 0 see A'(' as potentially going either .ay" 0 am re+ommending a 3hold4 status until market +onditions be+ome +learer. 0mportant Data Points and *rends to Monitor as Je ,e-Evaluate the *hesis A'('1s sales reports and magaFine<+elebrity publi+ity 6both o/ .hi+h +ould in+rease 3brand hype4 and sto+k pri+e7 Analyst ratings 6.hi+h" i/ do.ngrading +ontinues" +ould trigger a signi/i+ant /all in sto+k pri+e7