NEW YORK, United States — Aéropostale Inc., the clothing chain for teens, is offering the biggest sales discount in America for private-equity firms seeking a deal at the mall.

After reporting its smallest annual profit in at least a decade and forecasting a first-quarter loss, Aéropostale’s stock slumped last week by the most in two months. That left the company valued at 0.46 times its revenue in the last year, the cheapest among similar-sized U.S. specialty-apparel retailers, according to data compiled by Bloomberg. The $1.1 billion chain, with no debt and a lower price relative to free cash flow than any of its peers, could follow fellow mall retailer Hot Topic Inc. in attracting a buyout, Jefferies Group LLC said.

Private-equity suitors may be lured by Aéropostale’s free cash flow generation and the chance to improve profitability, while its lack of debt leaves room to finance a deal, according to Morningstar Inc. Aéropostale, which sells hoodies and jeans, earns less in profits for each dollar of sales than its peers, data compiled by Bloomberg show. Buyers could offer $20 a share for the New York-based chain, a 45 percent premium, based on the earnings multiple agreed to in Sycamore Partners’s $600 million offer for Hot Topic, according to Wedbush Inc.

“There’s clearly value in this company but management is finding some trouble with unlocking it,” Jaime Katz, a Chicago- based analyst at Morningstar, said in a telephone interview. For a buyout firm, “you could get gross margins up pretty quickly and operating margins up pretty quickly and clean your hands of it in five or six years and put it back out on the market. That’s kind of a nice quick turnaround for someone looking to make a buck in private equity.”

Profit Slump

Ken Ohashi, vice president of investor and media relations at Aéropostale, declined to comment on whether the retailer would be open to a sale or had received interest from potential buyers.

The company’s profit peaked at $231 million in the fiscal year that ended in January 2011 before plummeting to $35 million in its most recent year ended Feb. 2. Same-store sales have been flat or down for 10 straight quarters, and Aéropostale’s profit margin has shrunk to less than 2 percent from almost 10 percent two years ago.

Last week, Aéropostale announced its first quarterly loss in at least 10 years and forecast an even wider deficit in the current quarter as it deals with unsold inventory from the holiday season.

Disappointing Outlook

Aéropostale’s stock plunged more than 5 percent on March 15 after the company’s first-quarter outlook missed analysts’ estimates, bringing its decline during the past 12 months to 36 percent. It traded at a 54 discount to its sales during the past year, cheaper than any other U.S. specialty-apparel chain with a market value of more than $500 million, according to data compiled by Bloomberg.

At last week’s closing price of $13.75, Aéropostale was valued at 9.6 times its free cash flow during the 12 months ended Oct. 27, the latest period for which such data is available. That’s the lowest among its peer group, data compiled by Bloomberg show.

Aéropostale’s valuations are among the “compelling reasons” that private-equity firms may consider a takeover of the company, Randal Konik, a New York-based analyst at Jefferies, wrote in a March 7 note to clients, a week before the company released its latest results.

Buyout Appeal

Sycamore’s bid this month for Hot Topic, as well as Starbucks Corp.’s purchase of Teavana Holdings Inc. and private- equity firm Apax Partners LLP’s deal for Nike Inc.’s Cole Haan brand completed this year, signal appetite for retail acquisitions, and Aéropostale could be next, Konik wrote.

Aéropostale has no debt and $114 million in free cash flow in the 12 months ended in October, making the company an attractive target for private-equity suitors, Katz of Morningstar said. She estimated an Aéropostale takeover could fetch $19 to $23 a share, or as much as a 67 percent premium.

“It’s easy to lever up,” she said. Buyout firms “don’t really have to put their own money on the table, which is something they always like.”

Private-equity shoppers also may be drawn to the chance to boost Aéropostale’s margins by addressing the inventory and assortment struggles that have plagued its earnings, according to Katz.

Merchandise Mismatch

For private-equity buyers, “it’s much easier to come in and fix a bad business,” Katz said. “Where is the mismatch between the merchandise and the target consumer? There’s clearly some sort of disconnect.”

Even as fashion misfires depress margins, Aéropostale could expand its presence outside of the U.S. and its P.S. from Aéropostale chain, which targets kids between the ages of 4 and 12, could grow to several hundred U.S. locations, according to Betty Chen, a San Francisco-based analyst at Wedbush.

“It certainly has a lot of the characteristics that a private-equity firm would probably find attractive,” she said. “They’ve got a growth concept from P.S. They generate a lot of cash and it has a strong brand.”

Chen estimated buyers could offer about $20 a share for the company, based on the multiple to earnings before interest, taxes, depreciation and amortization that Sycamore agreed to pay for Hot Topic.

No Bang?

Still, Aéropostale’s growth prospects may be limited, and the retailer’s slumping results could cause buyout firms to balk, according to Richard Jaffe, a New York-based analyst at Stifel Financial Corp.

“Private equity wants more bang for their buck,” he said. “You don’t have a growth story here.”

Aéropostale’s most recent earnings slide also may drive its gross margins to such a depressed level that adding leverage becomes challenging, which would limit financing options for private-equity suitors, John Kernan, a New York-based analyst at Cowen Group Inc., wrote in an e-mail.

Even so, for buyers willing to take on the risk of a turnaround, the effort could pay off, according to Katz of Morningstar.

Private equity could see an “opportunity to kind of clean this business up,” she said. “While Aéropostale is like the dog this year, it could be the winner next year.”

--By: Brooke Sutherland; Editors: Beth Williams, Sarah Rabil