AMERICAN AIRLINES SHARES GETTING CRUSHED SHORT-TERM – HOW MUCH MORE PAIN FOR THE BULLS?

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American Airlines Group, Inc.
AAL
shares have been in free fall since March 20th – largely coinciding and likely resulting from the resurgence in crude oil prices. The stock has dropped from around $55 in March down to as low as $38 and change in the recent days. With some technicians noting that crude has thus far failed to eclipse key resistance at $63 and that another leg lower may be in store for the commodity, can American Airlines shares hold up long enough to benefit from such a drop? Or, will technical forces and economic worries take over and force AAL shares lower? Let's take a look at the fundamentals and technicals for American Airlines Group to see what may be in store for shareholders… What the bulls see in American Airlines… • Some cheap valuation metrics: o Enterprise value of $37.95 billion versus a market capitalization of only $28.05 billion o A price-to-sales ratio of only 0.66 • 7.85% net profit margins that spin off positive operating free cash flows of $4.32 billion • An annual dividend ratio of 1.1% What the bears see in American Airlines… • Some pricey valuation metrics: o A price-to-book ratio of 10.22 o A PE of 5.5 –which does not seem so low when compared to estimated revenue and EPS growth of 3.8% and -23% respectively for next year. • Negative levered free cash flow of $648.50 million annually • Horrible balance sheet metrics: o Cash of $9.17 billion versus almost $19 billion in total debt o A debt-to-equity ratio of 684.59% o A current ratio of 0.99 The technical take on AAL shares… Technicians note that American Airlines stock is in a clear and powerful downtrend with an eventual downside projected target of $37.04. The bears will be trying to enter new short positions if and when the stock jumps up to either $41.72 or $44.18 – both of which are horizontal lines of resistance. On the other hand, the potential support level at which the bulls will be making their entries will likely be $37.04 (a combination of horizontal line support and long-term uptrend line support). Overall… American Airlines Group appears like it will be a strong technical buy candidate at some point soon – but not quite yet. The technicians note that the $37.04 level is likely going to be the big test as to whether the bulls will be able to turn things in their favor or completely lose control of the situation. Unless crude oil collapses soon, AAL shares will have to trade on their own merits – which is not a great situation considering the heavy debt load and weak revenue growth the company sports.
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Posted In: Short IdeasTechnicalsMoversTrading IdeasAmerican Airlines GroupStocks to Watch
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