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Should Value Investors Buy American Airlines (AAL) Stock?

Zacks Equity Research
·2 min read

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.

On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.

One company to watch right now is American Airlines (AAL). AAL is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. AAL has a P/S ratio of 0.18. This compares to its industry's average P/S of 0.42.

Finally, investors will want to recognize that AAL has a P/CF ratio of 4.33. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. AAL's current P/CF looks attractive when compared to its industry's average P/CF of 9.33. Over the past year, AAL's P/CF has been as high as 34.45 and as low as -305.42, with a median of 12.51.

United Airlines (UAL) may be another strong Transportation - Airline stock to add to your shortlist. UAL is a # 2 (Buy) stock with a Value grade of A.

United Airlines also has a P/B ratio of 2.19 compared to its industry's price-to-book ratio of 4.26. Over the past year, its P/B ratio has been as high as 4.68, as low as 1.76, with a median of 2.93.

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

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

American Airlines Group Inc. (AAL) : Free Stock Analysis Report

United Airlines Holdings Inc (UAL) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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