AAL has shed 20% in the las nine months
American Airlines Group Inc. (NASDAQ:AAL) announced on Monday, Feb. 7 that it signed an exclusive partnership agreement with Brazil’s largest airline Gol. As part of the agreement, which was announced last year, American Airlines will also invest $200 million in 22.2 million newly issued preferred shares of Gol, taking AAL's stake in the company to 5.2%.
The news initially sent the equity higher, but this surge turned out to be short-lived. Just a few sessions later, the equity began consolidating below the $19 level before falling lower. Additional pressure at the 120-day moving average rejected yet another rally around the same time period. AAL is still clinging to a year-to-date lead, but has shed 20% in the last nine months.
Short sellers have been targeting the struggling stock, with short interest up 16.1% in the last reporting period. The 99.74 million shares sold short now make up a solid 15.6% of the stock's available float.
Short-term options traders, on the other hand, have taken a much more bullish stance, picking up calls at a much quicker-than-usual clip. This is per AAL's Schaeffer's put/call volume ratio (SOIR) of 0.66, which stands higher than just 3% of readings from the past year.
With this in mind, now might be a good time to speculate on AAL with options. These traders are pricing in relatively low volatility expectations for the security right now, suggested by AAL's Schaeffer's Volatility Index (SVI) of 54%, which stands higher than 34% of readings from the past 12 months.
What's more, American Airlines stock offers a very attractive opportunity as a recovery and value play, with AAL trading at a forward price-earnings ratio of 7.39 and a price-sales ratio of 0.38. Although its annual revenues have increased 72% since fiscal 2020, revenues are still down 35% since fiscal 2019. In addition, American Airlines’ annual net income is still down by $3.68 billion since fiscal 2019 despite increasing by $6.89 billion over the past year.
AAL is estimated to produce $2.16 in earnings per share for fiscal 2023 which would indicate a $4.23 increase compared to the current year's earnings per share of -$2.07. American Airlines is also expected to increase revenues 12.6% for fiscal 2023.
Nonetheless, AAL still runs the risk of not meeting growth expectations, as the pandemic’s effects continue to linger. American Airlines also has a fairly weak balance sheet with $12.43 billion in cash and $46.15 billion in total debt, which could cause problems with its profitability in the long run.