American Airlines went public in 1971, and was issued a stock certificate. The stock opened at $20 per share, and traded for a relatively low $1.15 on its first day. The stock traded around $21 per share for the first two days, and when the final pre-market high came, in August 1971, it traded at $40.60 per share. On the third day of trading, October 3rd, American went to a split, changing to a single stock listing. The stock went back to $18 per share before
beginning its steep decline.
In October 1971, the company traded around $54 per share. After a short decline, the stock went to $35 per share on November 16th, but then quickly fell to $16.58 on November 29th. On December 15th, stock fell to $10 per share, but the decline continued. On March 15th, stock fell to $3 per share, and when the final pre-market high came, on April 3rd, the stock fell to $1.50. After that, the stock continued its decline until September 30th, when the price finally fell to $2.51 per share. The stock is now up from the $1.50 low, trading at around $40.90. But the price has been on a downward trajectory since that low.
How much would you pay for the American Airlines stock today?
American Airlines today trades at $29.24 per share, currently valued at $25.5 billion. The current value is roughly 68% higher than the pre-cash value of the stock, and it is up around 10% since March 1st. The value is up due to rising earnings, which have gone from $0.42 per share in the first quarter of 2014 to $0.74 per share in the first quarter of 2015. The $1.70 per share cash value represents a 65% rise in the stock price over that time period. The issue with the stock price is that there are a number of risks that could derail this rapid upward move.
In March, the average price of American Airlines was $35.00 per share. Before falling to the $30 range during the second quarter. In the second quarter, the stock traded for around $38.60 per share. And rose back to the $37 range after the pre-market highs on September 16th. The price declined to $34.80 on September 27th, but rose again after the pre-market highs on September 26th. The price now sits at around $38.80 per share, and given the fact that the value has fallen more than 50% from pre-market highs, it appears that the upward trend is ending.
The concerns in the stock market;
The concerns in the stock market are almost always related to earnings. American Airlines did experience a downturn in earnings for 2015, with earnings coming in at $0.83 per share. In the second quarter, earnings were $0.93 per share, and during the third quarter, earnings were $0.82 per share. The fourth quarter earnings will not be known until later this year, but at the pre-market highs, the stock traded around $41 per share.
Currently, earnings per share for the fourth quarter will be around $0.54 per share. And that is based on an average fourth quarter price of $38.60 per share. That is not a good price to buy American Airlines stock. As earnings per share are expected to go from $0.53 per share in the first quarter of 2015 to around $0.60 per share in the first quarter of 2016. The price would have to drop more than 40% for earnings per share to drop to $0.48 per share, which would imply a lower price of $28.80. That price represents a 50% decline from the current stock price. And it would take the stock price falling more than 40% to drop back down to the $1.75 per share pre-cash value. The price would have to decline more than 35% to drop back to the pre-cash value of $1.75 per share.
American Airlines stock earnings decline;
The major risk to the American Airlines stock is that earnings per share decline further, which is evident by the pre-market price. The price of the stock could go even lower if the company does not see enough growth in earnings. That could result in more buybacks to support the stock price. But investors will need to see improved earnings before buying into the American Airlines stock. Right now, the stock trades at around 2.4 times earnings. And that is fairly high for a stock that is declining significantly from pre-market highs. There is also the risk that earnings per share decline more than expected, which could sink the value of the American Airlines stock. If earnings per share declined more than expected, the pre-cash value of the stock would rise dramatically.
The bullish aspects of the American Airlines stock seem like they are running out of time. If earnings per share decline further, the price will likely decline even further. However, earnings growth is required before investors can invest in the stock. As a stock needs to be priced in a reasonable manner before it can trade.