To strengthen the balance sheet, American Airlines (NASDAQ: AAL) is targeting to reduce $15 billion of long-term debt by the end of 2025. Notably, the company plans to use excess cash from operations to repay debt and purchase new aircraft. Per recent filings, AAL has $20 billion of net debt on its balance sheet, much higher than the stock’s current market capitalization of $13 billion. While the recovery in travel demand is a trigger for airline stocks, a weak balance sheet remains a headwind for AAL stock.
Is American Airlines stock a good pick for a shorter time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test American Airlines stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!
MACHINE LEARNING ENGINE – try it yourself:
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IF AAL stock moved by -5% over five trading days, THEN over the next twenty-one trading days, AAL stock moves an average of 1.3 percent, with a 52.4% probability of a positive return
Some Fun Scenarios, FAQs & Making Sense of American Airlines Stock Movements:
Question 1: Is the average return for American Airlines stock higher after a drop?
Consider two situations,
Case 1: American Airlines stock drops by -5% or more in a week
Case 2: American Airlines stock rises by 5% or more in a week
Is the average return for American Airlines stock higher over the subsequent month after Case 1 or Case 2?
AAL stock fares better after Case 1, with an average return of 1.3% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.2% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how American Airlines stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold American Airlines stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For AAL stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
Question 3: What about the average return after a rise if you wait for a while?
The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.
AAL’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
It’s pretty powerful to test the trend for yourself for American Airlines stock by changing the inputs in the charts above.
Is there a better investment over American Airlines? American Airlines Stock Comparison With Peers summarizes how AAL compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.