Why AAL Stock Is A Risky Bet

American Airlines (NASDAQ:AAL) shares are currently priced around $11.10, reflecting a 35% decline this year, and positioning itself as a less attractive investment despite its apparently low valuation. A thorough examination of American Airlines' operational performance, financial health, and historical endurance uncovers numerous critical issues that overshadow its reduced price. With that in mind, if you are looking for upside with reduced volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative — having surpassed the S&P 500 and yielded over 91% returns since its launch. Additionally, examine – Boeing Stock Faces Fresh Crisis After 787 Dreamliner Crash
In comparing the valuation of American Airlines to the broader market, the stock seems inexpensive based on sales or profit metrics. Its price-to-sales (P/S) ratio is 0.1, which is significantly lower than the S&P 500's 3.0. Likewise, the company's price-to-free cash flow (P/FCF) ratio is 1.8 compared to the S&P 500's 20.5, and its price-to-earnings (P/E) ratio is 11.3 against the benchmark's 26.4. Although these indicators imply a bargain, a more in-depth look at the company's fundamentals paints a more intricate picture. Our dashboard on American Airlines Valuation Ratios provides further details.
American Airlines' revenue has seen some growth over the last few years. In the past three years, its revenue has increased at an average rate of 18.0%, surpassing the S&P 500's 5.5% rise. Over the last 12 months, revenues grew by 1.9% from $53 billion to $54 billion, although this is behind the S&P 500's 5.5% growth. However, its latest quarterly revenues experienced a slight drop of 0.2% to $13 billion compared to the previous year, unlike the S&P 500's 4.8% improvement.
Despite some revenue growth, the company's profitability continues to be a major concern. American Airlines' operating income over the last four quarters was $2.9 billion, resulting in a low operating margin of 5.4%, considerably lower than the S&P 500's 13.2%. Its operating cash flow (OCF) for the same period was $4.3 billion, leading to a disappointing OCF margin of 7.9% compared to the S&P 500's 14.9%. Moreover, American Airlines' net income over the last four quarters was just $685 million — revealing a very weak net income margin of 1.3%, substantially under the S&P 500's 11.6%.
American Airlines' financial stability also appears fragile. As of the latest quarter, the company's debt stood at $37 billion, while its market capitalization was $7.3 billion (as of June 11, 2025). This results in a very unfavorable Debt-to-Equity Ratio of 474.3%, starkly contrasting with the S&P 500's 19.9%. A lower Debt-to-Equity Ratio is usually preferred. On a positive note, cash and cash equivalents amounting to $7.5 billion represent 11.9% of American Airlines' total assets of $63 billion, demonstrating a reasonable cash-to-assets ratio compared to the S&P 500's 13.8%.
American Airlines' ability to endure economic downturns has historically been significantly poorer than the S&P 500 index. During the Inflation Shock of 2022, AAL stock dropped 57.7% from a peak of $25.82 in June 2021 to $10.92 in October 2023, while the S&P 500 saw a peak-to-trough decline of 25.4%. The stock has not yet returned to its pre-crisis high.
Similarly, during the Covid Pandemic in 2020, AAL stock fell 70.3% from a high of $30.47 in February 2020 to $9.04 in May 2020, markedly underperforming the S&P 500's 33.9% decrease. It has also failed to regain its pre-crisis high from that time.
The Global Financial Crisis of 2008 witnessed an even more significant drop, with AAL stock crashing 97.2% from a peak of $61.96 in January 2007 to $1.76 in July 2008, in comparison to the S&P 500's 56.8% decline. The stock has not recovered to its pre-crisis high from 2008 as well.
To conclude, while American Airlines exhibits notable revenue growth, this advantage is overshadowed by substantial financial troubles. The corporation grapples with poor profitability and limited financial stability, and its capacity to endure economic downturns is severely compromised. These combined elements result in an overall 'unfavorable' evaluation for the stock. Thus, despite its current very low valuation, American Airlines is regarded as a high-risk investment and an unattractive stock to purchase at its existing price.
While it would be prudent to steer clear of AAL stock for now, you might consider exploring the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (a mix of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver strong returns for investors. What's the reason for that? The quarterly rebalanced structure of large-, mid-, and small-cap RV Portfolio stocks offered an agile approach to capitalize on favorable market conditions while minimizing losses when markets decline, as outlined in RV Portfolio performance metrics.

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