American Airlines (AAL) Stock | Long Term Analysis | Overvalued or Undervalued |

Transcript (auto-generated)

All right hello and welcome everybody to the stock now spirit but today we’ll be talking about american airlines ticker symbol aal now this company is traded on the nasdaq and this company has gotten quite a bit of renewed interest recently and so i want to talk about american airlines and how they’re going to do as compared to some other airlines as well so we’re going to talk about how this company may do in the long term so we’re going to give a full long-term analysis on this company so we’re going to talk about how it’s able to profit as compared to other airlines etc and i also want to talk about the value of this company and that’s where things get really interesting so if you like this video please do like subscribe it’s about our channel and let’s get this content out to more people that more people can understand how american airlines works and also all the other stocks that we talk about work as well on our channel anyway thank you so much for watching without further ado let’s get started now i don’t want to go into too much depth about exactly how american airlines works the real point is that american airlines is an international airline their headquarter in fort worth texas and this company is really the world’s largest airline when you measure it by of course the fleet size how many passenger passengers they carry and also it’s the revenue passenger per mile now the revenue is really different from the profit so the revenue is really just the amount of money that the company is bringing in and not actually the amount of money that the company is making so although the company is bringing a lot of money from their passengers when they bring in about 6.5 billion dollars over this recent quarter from passenger revenue 326 million dollars from cargo revenue and then 607 million dollars from just additional revenue which is through their a advantage uh package and things like that that they have so those are just programs that they offer but we can see here that the company has operating expenses that have also cost the company a fortune so the company will take in about seven point five billion dollars in revenue but then spend about seven billion dollars just from its expenses so we can see over one of the more recent quarters that the company spent about 2.9 billion dollars on simply salaries wages and benefits for their workers now this is actually reduced since this is during still a little bit of the cover 19 hike says this company has had to furlough quite a bit of people in order to maintain at least a steady balance sheet and try not to lose as much money because guppy is still losing quite a bit money which we’ll get to in a moment but we can see that the company spends 1.6 billion on also fuel and also expenses like that which is really really expensive this is something that the company really has to work on and since there’s been consistent rising fuel prices this is going to hit the company pretty hard because they have to spend a lot of money on fuel in order to fly their planes of course so i think this is going to be a noticeable problem for the company in the future if gas prices continue to rise this could really hurt american airlines and also other airlines in this space we have to understand that this industry is just a really tough industry to invest in a lot of these airlines just have to struggle on a day-to-day basis and just maintaining cash and then also making sure that if the pandemic happens like this that they don’t just get destroyed by not having enough money in order to be sustainable over even a year this is where a lot of airlines had to take out a lot of loans and maybe issue more shares etc in order to just survive this is what american airlines had to do and this is why i want to step into the value of this company now if we take a look at the intrinsic value of the company we can see that the company currently has intrinsic value a projected free cash flow intrinsic value of about negative 30 a share now that is substantially low you should never have a negative intrinsic value that is not good at all and this is because the company has been consistently losing lots of money over at least quite a few years they have been able to bring in profit in 2019 and other years like that but they’ve had such substantial losses in the most recent quarters that this company has just had to struggle immensely during the copa 19 pandemic and that’s why the interesting value is very low we can talk about how you calculate the interesting value which is something that i really like to take note of and here we can talk about it we have a growth multiple here which is just they projected growth of their earnings each year and 9.52 uh growth multiple is something that is very consistent with other companies that may not be making any money this growth multiple is pretty much as low as you would play you can get this information from if you’re interested you can also multiply this by the free cash flow which is a six year average of that then you add the total stock exactly which is simply the assets minus the day of the company in order to take into account the actual book value of the stock and then you divide that by 0.8 which is just offsetting the growth multiple a little bit and then you divide by that shows that thing in the market in order to get the intrinsic value per share of the company now this is just one way of tackling intrinsic value there’s many ways so please do keep that in mind but i like this way specifically and i think it’s one of the more easier intrinsic values to understand so this is something that we like to talk about in our videos we can take a look at the company’s book value per share and notice that the company has lost quite a bit of money over most recent quarters and therefore the book value is actually at about negative 11.84 so this is a really really low book value you should never have a negative book value that means the company’s shared equity is actually negative which means that the company has more debt as compared to their assets so when you take the assets minus the debt in order to get the share with equity you are trying to essentially figure out the company’s worth so if the company has more debt that means that the shared equity will be negative and since the book value is the shareholder equity divided by the outstanding shares in the market that means that the company’s book value will be negative if the company’s shared equity is negative so this is very important and when you’re valuing a company in general you want to make sure the company doesn’t have a negative book value make sure that it’s profiting of course as well and that’s giving out benefits to a shareholder such as buying back its own stock maybe paying out a demand etc so it’s going to take a very long time i think for the company to have a positive book value now you might be able to say well if the company’s making a lot of money then the negative book value isn’t going to be as big of a deal because the intrinsic value should be positive but we know that the intrinsic value is not positive we can also take a look at the incumbents notice that the company is not making any money at all we’d see the company has been consistently losing lots of money over the past and that the company did bring in about 19 million dollars in the most recent quarter which is trying to show that they are changing a little bit but i have noticed that this company is unfortunately struggling substantially with the most recent losses of approximately two billion dollars a quarter that’s a tremendous loss for the company and that has hurt their book value immensely so this has been a noticeable problem for the airline and so although they’ve been profitable in the past they have had issues with losing lots of money in the past as well and so you could see her that they have had cores that they’ve just struggled a profit and things like that so you have to understand that this company is just a very risky investment in my opinion i think there’s many other stocks and i think there’s many other airlines as well that you could buy if we compare american airlines to maybe delta airlines that’s also another international airline delta airlines makes the most money in terms of revenue out of all the airlines in the us so this is something that i definitely want to note that the delta airlines not only is able to buy back their own stock but they’re also able to pay out a dividend and this is not right now of course the company is not going to pay out a demand or do things like that due to the cover 19 pandemic so unfortunately i don’t see a big future for american airlines nor do i see it for really the airline industry i think that that’s a very difficult industry to work with it so personally i’m not invested in the airline industry and i think it is simply too risky and there’s other stocks that you could look into that may be more safe such as maybe tech companies banks insurance companies et cetera now if we take a look at the price earnings they know it here as being zero because the company is losing money but we can also understand that the company really just has a negative price earnings or zero whatever you want to call it right now this i think will change in the future likely as the company hopefully brings in a little bit of profit but unfortunately due to the significant losses that they’ve endured recently they have to take out a lot they’ve had to take out a lot more debt recently now a lot of these loans have been from the government and the government is not asking for any interest on these loans at this point so i don’t think american airlines is going to take as big of a loss in the future as we may be expecting due to their interest costs not being raised by at least that much but we also have to understand that this company still is losing money at this point in that until they can return a at least higher than zero priced earnings i’m still a bit concerned investing in this company now this company tends to trade at a price targets of about 10. so with the company trading at a price earnings of about 10 traditionally if the company’s earnings do come back a little bit i would expect the company’s trading value to tend to trade towards likely a price targets of 10. we have also noticed that this company has traded at price darings of zero for quite a long period of time or negative however you want to call it and so this is just because the company has lost a lot of money in the past now i do want to talk about some of the positives of this company and since it is an airline it is pretty much forced to buy back its own stock and payout demand in order to benefit shareholders it spent about 1.1 billion dollars on stock buybacks in 2019 and so this is actually pretty good for the company stock when you decrease the outstanding shares in the market that helps to increase the company’s book value because since the company’s assets will be distributed across less shares that means that each chair is likely going to be worth more by asset value so that means that the company’s intrinsic value should increase the book values increase and things like that so that should also help to increase the trading value because if the intrinsic value increases that helps to justify a higher trading value as well now the company’s negative book value and the negative intrinsic value is still going to be a noticeable problem for the company’s trading value as it’s likely not going to help it any time soon with the company having negative price earnings and a negative book value negative intrinsic value things like that that does not encourage a value investor like me to get into the stock but if you’re trying to make a logical long-term investment there just seems to be so many other stocks that you can invest in that would also just make more money in general for example like i’ve said insurance companies will buy back their own stock payout dividends et cetera this would include allstate like we made made a video about also bank of america we made a video about also citigroup we made a video about they’ll do the same thing and numerous other stocks that just seem to be a lot more profitable and aren’t going to get as affected from a coba 19 pandemic now to continue on about the stock buyback stuff we’ve noticed that the company’s actual shares outstanding in the market have increased so the company has gone from about 400 or 430 million shares out staying in the market after the stock buybacks in 2019 to now about 650 million shares outstanding in the market and this is because the companies had to issue more shares in order to retain more cash and this helps the company to survive a big hit like the copa 19 pandemic this is where they lost a tremendous amount of money so they had to do this in order to sustain capital to just last during cover 19. so this is something that a lot of airlines have had to do however this is still really not good for the shareholders when the company issues more shares this dilutes the market this increases the alternating shares and this means that the company has assets that are going to be distributed across more shares so this actually decreases the ad set worth per share of the stock not only that but this company doesn’t pay out a demand anymore now this company used to pay out a demand in the past so this is actually pretty nice for the company if the company is able to retain this dividend maybe in the future that would be great however unfortunately this company isn’t able to afford this demand at this point because they aren’t making any money anymore so with the lack of the dividend issuing more shares and still just trying to recover from the covet 19 pandemic i don’t see this company as being a very good value investment in my opinion at all nor do i think it’s going to be a very good growth investment either so overall that’s my opinion on the stock i’m not a fine joel advisor or anything like that so please do your research for investing anyway hopefully you learned something if you like this video please do like subscribe it is about our channel and please comment down below and tell us what you think about this company we’ll try to get back to you anyway thanks again for watching have a great day everybody.