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Are Investors Undervaluing American Airlines (AAL) Right Now?

Zacks Equity Research
ChannelAdvisor (ECOM) has been upgraded to a Zacks Rank 1 (Strong Buy), reflecting growing optimism about the company's earnings prospects. This might drive the stock higher in the near term.

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One company value investors might notice is American Airlines (AAL). AAL is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock holds a P/E ratio of 5.75, while its industry has an average P/E of 8.81. AAL's Forward P/E has been as high as 11.53 and as low as 5.34, with a median of 7.36, all within the past year.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. AAL has a P/S ratio of 0.33. This compares to its industry's average P/S of 0.65.

Finally, we should also recognize that AAL has a P/CF ratio of 4.85. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 5.44. AAL's P/CF has been as high as 7.33 and as low as 4.50, with a median of 5.59, all within the past year.

These figures are just a handful of the metrics value investors tend to look at, but they help show that American Airlines is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, AAL feels like a great value stock at the moment.


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