American Airlines Group Inc. (AAL) is the world’s largest airline by scheduled revenue passenger miles. It’s wholly-owned subsidiaries are American Airlines, Envoy Aviation Group, PSA Airlines and Piedmont Airlines. The company’s primary business is to provide passenger and cargo services.
The company’s operations were hurt by the coronavirus-led drop in travel demand, which negatively affected passenger revenues. The company incurred losses in five consecutive quarters. Management expects system capacity for the second-quarter to fall in the 20-25% range compared with the second-quarter of 2019. As more people have gotten vaccinated though, bookings are improving.
As of March, the company had $14 billion in cash compared with only $2.4 billion in short-term debt. However, AAL’s profit margin is dismal at -61.5%. Sales are down an average of 20.4% per year over the past five years, highlighted by a drop of 61.5% in the last year. The good news is that analysts forecast revenue to surge 340.2% year over year in the second quarter.
From a valuation standpoint, the stock appears quite undervalued with a trailing P/E of 2.81 and a forward P/E of 7.39. While the stock is up 29.7% for the year, it is down 10.2% for the month as momentum has been mixed as of late. This is evident in the chart below.
Take a look at the 1-year chart of AAL below with added notations:
Chart of AAL provided by TradingView
AAL may have formed a bearish chart pattern known as a double top. Double tops are reversal patterns and are as simple as they sound: Rallying up to a point (T), selling off to a support level, in this case is $20, and then rallying back up again to approximately the same top (T).
A short trade could be made on a break of the $20 support level.
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AAL shares were trading at $20.49 per share on Friday morning, up $0.03 (+0.15%). Year-to-date, AAL has gained 29.93%, versus a 17.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp
I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...
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