Long-established in the Transportation industry, American Airlines Group Inc (AAL, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 0%, juxtaposed with a three-month change of 14.26%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of American Airlines Group Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 6/10
- Growth rank: 2/10
- GF Value rank: 8/10
- Momentum rank: 5/10
Based on the above method, GuruFocus assigned American Airlines Group Inc a GF Score of 69 out of 100, which signals poor future outperformance potential.
Understanding American Airlines Group Inc's Business
With a market cap of $9.53 billion and sales of $52.91 billion, American Airlines Group Inc stands as the world's largest airline by aircraft, capacity, and scheduled revenue passenger miles. Its major U.S. hubs include Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. The company is a dominant player in connecting Latin America with destinations in the United States, generating over 30% of U.S. airline revenue. Following a major fleet renewal, American Airlines Group Inc boasts the youngest fleet among U.S. legacy carriers, with an operating margin of 8.95%.
Financial Strength Breakdown
American Airlines Group Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The interest coverage ratio of 2.19 positions it worse than 79.52% of 796 companies in the Transportation industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.8, which is below the distress zone of 1.81, suggesting that the company may face financial distress over the next few years. Moreover, the low cash-to-debt ratio at 0.26 indicates a struggle in handling existing debt levels. Additionally, the debt-to-Ebitda ratio is 9.68, which is above Joel Tillinghast's warning level of 4 and is worse than 89.9% of 832 companies in the Transportation industry.
Growth Prospects
American Airlines Group Inc's growth trajectory appears to be stalling, as reflected by its low Growth rank. The company's revenue has declined by an average of -10.1% per year over the past three years, underperforming 83.39% of 921 companies in the Transportation industry. This stagnation in revenues may raise concerns in a fast-evolving market. Furthermore, American Airlines Group Inc's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Next Steps
Considering American Airlines Group Inc's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. The company's challenges in managing debt, coupled with its lackluster growth and low predictability, paint a cautious picture for value investors. As the airline industry faces dynamic changes and intense competition, American Airlines Group Inc may struggle to maintain its historical performance levels.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
