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Is American Airlines Group (AAL) a Suitable Value Pick?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put American Airlines Group, Inc. (AAL - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, American Airlines has a trailing twelve months PE ratio of 7.41, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.89. If we focus on the long-term PE trend, American Airlines’ current PE level puts it above its midpoint over the past three years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Transportation- Airline industry trailing twelve months PE ratio, which stands at 11.35. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that American Airlines has a forward PE ratio (price relative to this year’s earnings) of 9.65, so it is fair to expect an increase in the company’s share price in the near future.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, AAL has a P/S ratio of about 0.57. This is lower than the S&P 500 average, which comes in at 3.08 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, American Airlines currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes American Airlines a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 3.40, which is far better than the industry average of 5.10. Clearly, AAL is a good choice on the value front from multiple angles.
What About the Stock Overall?
Though American Airlines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘A’. This gives AAL a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimate has been encouraging. The current quarter has seen six upward and no downward estimate revisions in the past 30 days, while the current year has seen three upward and five downward estimate revision in the same time frame.
As a result, the current quarter consensus estimate has moved up by 6.4% in the past one month, while the current year estimate has inched higher by 2.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Bottom Line
American Airlines is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. Further, the stock belongs to an industry which is ranked among the top 21% (out of more than 250 industries), indicating that broader factors are favorable for the company. In fact, over the past one year, the Zacks Transportation- Airline industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
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Is American Airlines Group (AAL) a Suitable Value Pick?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
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One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put American Airlines Group, Inc. (AAL - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, American Airlines has a trailing twelve months PE ratio of 7.41, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.89. If we focus on the long-term PE trend, American Airlines’ current PE level puts it above its midpoint over the past three years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Transportation- Airline industry trailing twelve months PE ratio, which stands at 11.35. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that American Airlines has a forward PE ratio (price relative to this year’s earnings) of 9.65, so it is fair to expect an increase in the company’s share price in the near future.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, AAL has a P/S ratio of about 0.57. This is lower than the S&P 500 average, which comes in at 3.08 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, American Airlines currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes American Airlines a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 3.40, which is far better than the industry average of 5.10. Clearly, AAL is a good choice on the value front from multiple angles.
What About the Stock Overall?
Though American Airlines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘A’. This gives AAL a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimate has been encouraging. The current quarter has seen six upward and no downward estimate revisions in the past 30 days, while the current year has seen three upward and five downward estimate revision in the same time frame.
As a result, the current quarter consensus estimate has moved up by 6.4% in the past one month, while the current year estimate has inched higher by 2.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
American Airlines Group, Inc. Price and Consensus
American Airlines Group, Inc. Price and Consensus | American Airlines Group, Inc. Quote
Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Bottom Line
American Airlines is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. Further, the stock belongs to an industry which is ranked among the top 21% (out of more than 250 industries), indicating that broader factors are favorable for the company. In fact, over the past one year, the Zacks Transportation- Airline industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>