The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in American Airlines Group Inc. (NASDAQ:AAL) have tasted that bitter downside in the last year, as the share price dropped 35%. That's disappointing when you consider the market returned 0.9%. However, the longer term returns haven't been so bad, with the stock down 28% in the last three years. Unfortunately the share price momentum is still quite negative, with prices down 11% in thirty days.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Even though the American Airlines Group share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth. The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.
With a low yield of 1.5% we doubt that the dividend influences the share price much. American Airlines Group's revenue is actually up 3.3% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free report showing analyst forecasts should help you form a view on American Airlines Group
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between American Airlines Group's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. American Airlines Group's TSR of was a loss of 34% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market gained around 0.9% in the last year, American Airlines Group shareholders lost 34% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6.3% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of American Airlines Group by clicking this link.
American Airlines Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.