Are You Backing The Right Horse With AAR Corp (NYSE:AIR)?
AAR Corp (NYSE:AIR), a US$1.54b small-cap, operates in the aerospace and defence (A&D) industry, which is undergoing restructure to capture new tech-driven opportunities. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 24.3% in the upcoming year , and a whopping growth of 50.7% over the next couple of years. the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether AAR is a laggard or leader relative to its capital goods peers.
View our latest analysis for AAR
What’s the catalyst for AAR’s sector growth?
Relatively lower commodity prices and strong passenger travel demand will likely drive the commercial aerospace sub-sector growth. In the previous year, the industry saw growth in the teens, though still underperforming the wider US stock market. AAR leads the pack with its impressive earnings growth of 41.9% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with AAR poised to deliver a 26.7% growth over the next couple of years compared to the industry’s 24.3%. This growth may make AAR a more expensive stock relative to its peers.
Is AAR and the sector relatively cheap?
The A&D industry is trading at a PE ratio of 24.36x, relatively similar to the rest of the US stock market PE of 20.14x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 13.7% compared to the market’s 10.7%, potentially illustrative of past tailwinds. On the stock-level, AAR is trading at a PE ratio of 21.01x, which is relatively in-line with the average A&D stock. In terms of returns, AAR generated 7.9% in the past year, which is 5.9% below the A&D sector.
Next Steps:
AAR’s future growth prospect aligns with that of the broader market and it is trading in-line with its peers. So if you like its growth prospects, you’ll be paying a fair value for the company. If the stock has been on your watchlist for a while, now may be the time to enter. However, before you make a decision on the stock, I suggest you look at AAR’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has AIR’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of AAR? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
