Is AAL Stock A Buy @ ? American Airlines 200% Return?

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So in this video today we are going to be doing a deep dive and analysis on a stock that i recently started purchasing a couple of weeks ago and it’s a stock i’ve been getting a lot of requests about down in the comment section below and that is american airlines stock now last night i was scrolling through youtube watching youtube videos because i have nothing

Else to do with my time like most of you guys as well stuck at home and i was watching a video that jeremy from financial education put out doing an analysis on carnival cruise line stock and that video absolutely blew up and so that got me thinking and i realized there’s a lot of stocks out there that have fallen massively in the last month or so and i think a lot

Of people are wondering whether or not this is a buying opportunity for these stocks so i just wanted to give jeremy a shout-out for the inspiration for this video and we’re specifically going to be talking about whether or not american airline stock is a buy trading around $9 per share today is so just for a bit of context here on american airlines stock here is

The current situation with them back in january of 2018 this stock was trading near $60 per share and then they began going into a downtrend in late 2019 through 2019 which is way before the current crisis even started now as soon as the virus hit american airlines stock sold off massively just like many other travel related stocks did as well because the travel

Shutdowns and travel bans and fears of the virus spreading have absolutely crippled the travel and airline industries on february 12th before the sell-off began american airlines stock was trading at around $30 per share which is 50% of what it was at at the 2018 high when it was trading at $60 per share so before the virus even started american airline stock was

Already down about 50 percent from their previous high over the last five years and then just one month later american airlines stock was trading for less than 50% of where it was in february down to $14 per share and now it may have caught support around the $10 per share range we’ll be able to tell by the end of the day today but as of making this video it dropped

Back down to $10 and fell below that and is now trading in the high nines per share so the stock may have found some support here around $10 per share which was the closing price on march 20th after that the stock rallied to 1566 per share shortly after coming back down to $10 and as of making this video falling slightly below 10 so is american airlines stock going

To go back up is it going to go back down and is it up by right now that’s exactly what i’m gonna be sharing with you guys in this video and i just have to make this quick disclaimer here guys this is merely my opinion this is not financial advice and you should always do your own due diligence before buying or selling any stocks on your own and the reason why many

People are asking themselves if american airlines stock is a buy is because they are currently down about 85 percent from the 2018 high of about $60 per share and they’re also down 66 percent from where they were when the virus began spreading when they were initially act around $30 per share and a lot of people are familiar with the expression of buy low and sell

High and we also know that warren buffett is somebody who invests heavily in airline stocks and he does own shares of american airlines so is it time to buy into the airline stocks and follow warren buffett’s well let’s talk about that right now now before the virus even started as we said american airlines was already having some trouble the stock was down about

50 percent from where it was at their 2018 high and so what were the reasons behind this well their quarter for earnings report that came out in january fell short of revenue expectations and earnings expectations so going into this they weren’t doing too great as far as revenue and earnings and a lot of this was due to a crisis that happened with the boeing 737

Max aircrafts where we had two fatal crashes that resulted in the faa grounding these planes as a mandatory measure and so essentially what happened here is many of these large airlines including american airlines took delivery of these new boeing 737 max aircrafts and after there were two fatal crashes they were required to ground those planes and they could not

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Fly those planes they had already taken delivery of them and were beginning to pay for them and they were now no longer able to make money from those planes and the way the airline industry works is it’s a massive upfront investment to purchase a new airplane and that cost is recuperated over the useful life of that aircraft it’s very similar to the construction

Industry where in order to be an excavator you have to spend hundreds of thousands of dollars on equipment but you take out a big loan and you pay for it over the course of the lifetime of that equipment so american airlines and other airlines were essentially paying for these aircrafts that were unable to fly which became a massive cash burn for them now they

Did have a settlement with boeing earlier this year where boeing had to pay out damages to these airlines as a result of not being able to fly these aircrafts but american airlines did not disclose the terms of that agreement so going into the current crisis we are seeing now the airlines were already bruised as a result of the 737 max situation and the airline

Hit the hardest from that was actually southwest airlines they were the airline flying the most 737 max aircrafts that were required to be grounded however american airlines had also taken delivery of many of these aircrafts themselves so it hurt pretty much every major airline across the board and then obviously the biggest situation hurting airlines and now why

We are seeing the stocks falling massively is the current pandemic that is spreading throughout the world so due to the slowdown of air travel related to this pandemic american airlines and other airlines have slashed their flights in a major way to cut down on costs so american airlines said they’re planning to cut capacity by 70 to 75 percent in april and 80

Percent in may and international flights will be cut 90 percent across those two months and these are cuts like we have never seen before even when compared to the post 9/11 period when airlines were hurt massively after those terrorist attacks now just how much is this going to end up costing the airlines well nobody knows for sure but there are some estimates

Being thrown around one estimate here comes from the international air transportation association and they feel that airlines could take a 252 billion dollar hit in 2020 due to the massive travel shutdown but even before that we also have to talk about the debt situation with american airlines which fills in the details from about 2011 to 2018 because back in 2011

American airlines actually entered chapter 11 bankruptcy and they ended up emerging from that so let’s cover those details now and talk about whether or not american airlines is currently at risk for bankruptcy now airlines in general are known for taking on massive amounts of debt and that is just the nature of this industry it’s extremely expensive to purchase

Commercial airplanes and as we mentioned earlier the cost is recuperated over the useful life of that aircraft so they take out massive loans buy these airplanes and over the next couple of decades they recuperate those costs by operating flights now beyond that airlines themselves are in a cyclical industry which means they are susceptible to the ups and downs

Of consumer spending when people have excess money they love to go travel they will spend money and they will fly to places and they will take vacations but as soon as people don’t have money one of the very first things they cut back on is their discretionary spending including travel so that hurts this industry to begin with because when people don’t have money

They’re not spending traveling and these airlines will have lower and lower rates of occupancy on these flights allowing them to make less and less money and the last point on this topic here is that airlines themselves are a very low profit margin business we all know how much we spend on airfare and tickets it’s usually a couple hundred dollars depending on

Where you are flying but it’s actually staggering how little money these airlines make in terms of the profit per passenger and according to 2017 figures american airlines earn the profit of just ten dollars per passenger on each of their flights and the industry average for that period was eighteen dollars per passenger so american airlines was already on the


Lower end of the profitability per passenger largely due to the amount of debt that they were servicing and now we’ll talk about the debt situation here and in 2011 in the post great recession period american airlines ended up going into chapter 11 bankruptcy filings because of the massive amount of debt that this company had because of the great recession people

Were not spending money on travel the airlines were hurt and american airlines had no choice but to file for bankruptcy now the company didn’t go under they ended up merging with another airline called us airways exiting bankruptcy and officially giving them a lifeline but at the time the stock was trading as low as $20 per share and investors who were holding

On to that stock were warned that they would likely get entirely wiped out through the bankruptcy proceedings now if a company enters chapter 11 bankruptcy it doesn’t always mean that shareholders are wiped out it depends on the situation it’s certainly possible if a company is filing for bankruptcy if they do end up going bankrupt shareholders will likely get

Nothing as they are last on the list to get paid however if they exit the bankruptcy filing for example like american airlines did it can be a very high risk but profitable move for investors so it’s very risky to hold on to a stock of a company in chapter 11 or to buy stocks of a company in chapter 11 but in the case of american airlines it ended up paying off

In a massive way for investor essentially what happened here is they exited chapter 11 due to that merger and shares of the old amr were exchanged for new shares under the symbol aal and many investors made out like bandits by purchasing shares in the sub $1 per share range but even after this merger american airline still has some massive debt problems and they

Have more debt than any other major airline out there so just to compare them here guys looking at their long-term debt american airlines has 21.5 billion dollars in long-term debt united airlines is second with 13.1 billion delta airlines is third with eight point nine billion in southwest airlines has the lowest long-term debt based on major airlines with just

1.8 billion and the best way to think of it is this guys the more debt a company has the less time they can survive financially because they are servicing or paying down that debt it’s kind of like having a massive mortgage and housing payment versus a very small mortgage or housing payments when you lose your job if you have lower expenses you can afford to stay

Afloat for longer but if you have massive debt you can’t stay afloat nearly as long so based on the current debt load of american airlines they are in the worst position financially and based on the current crisis in the airline industry they have the shortest lifeline before they would again have to look at a bankruptcy type situation but because of the massive

Amount of risk the stock has sold off massively so essentially you have to look at this as a risk reward profile american airlines has the most debt so what’s the highest risk highest risk of going bankrupt but also the highest potential upside if they make it out of this southwest airlines is on the other end of the spectrum with the lowest amount of debt they

Haven’t sold off nearly as much so there’s less upside but less potential for that company to go under and you have to determine if you want to buy an airline stock where do you want to fall on that risk reward profile so before we talk about whether or not i think american airlines is a buy the last thing we need to cover here is the bailout of the airline

Industry the senate passed a fifty billion dollar bailout for the airlines a couple of weeks ago and that includes twenty five billion dollars in grants and twenty five billion dollars available as loans to airlines to help them stay afloat and of that fifty billion dollars american airlines is expected to get about twelve billion in federal assistance so based

On that lifeline they were given from this bailout there’s no immediate threat of bankruptcy in the next month or two but beyond that we can’t say that for sure it all depends on how long the airlines are bleeding money and as we said because american airlines has the most debt they have the shortest lifeline right now based on this massive cut in travel so is

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American airlines a buy this is my current opinion and i am somebody who already owns some shares of this company and i’ll share with you what my position is at the end of the video so based on the current situation i would call this 100% a speculation they could come out of this and do very well and the shares could triple or quadruple or they could just as easily

Go bankrupt and the shares could become worthless and this is a company that filed for bankruptcy not even nine years ago and if you’re comfortable with that risk then this may be a stock that you consider but if you’re looking at the airline stocks and you want a safer option i would consider southwest airlines based on their long-term debt and again this all just

Comes down to where you want to fall on that risk reward profile and are you looking to make an investment or a speculation now beyond that as far as the share price goes we have seen the stock come back down to $10 per share it seems to be testing his support today and as of making this video it fell below $10 per share into the $9 range so i would say that odds

Are the stock is going to continue to fall and right now what we have here is a falling knife that a lot of people have grabbed myself included so as far as how low the airline stocks will go your guess is as good as mine it has to do with a lot of factors that are entirely out of our control first of all how long will the pandemic last will there be a second or

Third wave will there be additional airline bailouts or lifelines put in place and also after the pandemic ends are people going to be itching to travel or are they going to be bruised from the economic fallout and unable to spend money on travel so there are so many massive unknowns in the airline industry right now it would be impossible to call a bottom or to

Tell what is going to happen with the stock but if you simply look at the share price they are down about 85 percent from there 2018 high and 66 percent from where they were back in february so if american airlines stays afloat i would believe that five years from now we will look back at this and say this was a good buying opportunity for airline stocks but again

Guys that is just my opinion so right now guys in my portfolio which i share publicly on my channel i do a series where i am building a one hundred thousand dollar dividend stock portfolio from scratch and i’ll put a card in the corner if you guys want to see that in that portfolio i hold both delta airlines stock and american airline stock and combined that makes

Up six percent of my portfolio and i’ve invested about four thousand dollars in those stocks as a speculation if i lose all that money i’m not concerned about that because it’s what i am willing to risk based on my risk reward comfort ability and right now because i started buying these stocks a couple of weeks ago i am down about 40% and i probably am going to

Continue to lose money on this investment in the short term but we will certainly see what happens so anyways guys that is going to wrap up this video thank you so much for sticking around to the end i would love to hear what you guys think about american airlines down in the comment section below are you buying airline stocks which ones are you looking at let me

Know what you guys think and one more thing i want to mention here guys if you are interested in getting two free stocks we both has a promotion going on right now or if you sign up for a brokerage account with them you will get a free stock just for signing up then if you fund the account with $100 or more you will get a second free stock so if you guys want to

Freeze just for signing up and funding with $100 that’s going to be the top link down in the description below but thank you guys so much for watching subscribe and hit that bell if you haven’t already that way you don’t miss out on any future uploads and i will see you in the next video

Transcribed from video
Is AAL Stock A Buy @ $9? American Airlines 200% Return? By Ryan Scribner

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