Is American Airlines Stock a Long-Term Investment?

AAL stock has the potential power to thrive in the future

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American Airlines Group Inc. (NASDAQ:AAL) is one of the largest airlines in the world, but -- like every other company in the airline sector -- has taken a major hit by the novel coronavirus outbreak, down nearly 60% over the past 12 months. Prior to the pandemic, AAL was stuck on a bearish path for approximately two years. The buildup of negative sentiment around the travel industry has created potential opportunities for investors willing to take the risk, but just how much of a risk is AAL stock as a long-term investment?

American Airlines currently has a market cap of $6.33 billion and a book value of -$6.23 per share. The company has a forward price-earnings ratio of 7.39 and a trailing price-earnings ratio of 2.81.

American Airlines has beat expectations on two of its last four earnings reports, but the two most recent reports have been the misses. In its most recent quarter, the company missed expectations by $0.12 with a loss of -$7.82. In the first quarter of 2020, American Airlines’ margin of miss was $0.32 with a reported miss of -$2.65. The company last reported positive earnings in the fourth quarter of 2019, with an EPS of $1.15, beating expectations by $0.01. In the third quarter of 2019, American Airlines reported an even higher EPS of $1.42, beating expectations by $0.03. For the company's upcoming earnings announcement (currently slated for before-the-open on Thursday, Oct. 22), American Airlines is expected to report a quarterly loss of -$5.88 after this year's seemingly-continuous beatdown of the airline sector. The company has a trailing 12-month EPS of -$8.02.

Prior to the COVID-19 pandemic, the company consistently increased its revenue by at least $1 billion on an annual basis. In just the last quarter, American Airlines' revenue fell nearly $7 billion. In the prior quarter, revenue fell almost $3 billion. 

Over the past four years, American Airlines’ net income has been largely inconsistent on an annual basis. Further, the company had been able to maintain a positive net income of over $1 billion, until 2020.  American Airlines had a net income loss of more than $4 billion over the last two quarters combined. American Airlines currently has $9.81 billion in cash and $40.05 billion in total debt. The company’s balance sheet holds $64.54 billion in total assets and $67.71 billion in total liabilities. American Airlines' total equity stands at -$3.17 billion.

From a fundamental-only point of view, AAL is far from a desirable stock. The company has more liabilities than it does assets; over $30 billion more in debt than it has in cash. Its business is producing negative revenue, and will likely continue to do so in the short-term. In the long-term, it is certainly unclear if the airline industry will ever recover to its full capacity. However, what American Airlines has going for it is that the company is the U.S. government likely won't let American Airlines fail. The chances of the company going bankrupt are slim given how critical American Airlines it is to the U.S. economy. Although the company will likely take years to recover from this hit, it will survive (albeit changed), and start producing profits again in the future. If you are a buy-and-hold... and-hold... and-hold investor looking for discounted AAL stock ahead of earnings.


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