As you have probably figured out by now, the onset of the novel coronavirus hit some companies harder than others. We can look at American Airlines (NASDAQ:AAL) as a prime example of this. Profound changes in the economy have made it difficult to profit from AAL stock long-term.
Sure, it might be tempting to look at AAL stock and assume that it must be a bargain. After all, the credo of value investors is to “buy low and sell high,” right?
Yet, just because a stock has gone down, this doesn’t necessary mean that it’s worth owning. Warren Buffett famously said that price is what you pay, but value is what you get. I hate to be the bearer of bad news, but bottom-fishing for AAL stock shares in 2020 or 2021 could lead to sustained losses.
Clues within the airline industry generally point to a market that’s not constructive for AAL stock holders. It could be a long time before this stock is worth looking at, not to mention recommending it.
AAL Stock at a Glance
So, we already touched upon the idea of price versus value. One measure that seasoned value investors like is the earnings per share, which helps to formulate a stock’s price-to-earnings ratio.
In the case of AAL stock, there’s no price-to-earnings ratio for the trailing 12 months because there are no earnings to speak of. More specifically, the trailing 12-month earnings per share for AAL comes to -$14.
Now, that’s quite awful for a stock that traded at $14 and change on Nov. 24. When the earnings per share is the negative equivalent of the share price, that’s a bright red flag waving in our faces.
Besides, history shows that AAL stock bulls aren’t always reliable. On June 8, AAL spiked all the way up to $20 and change. This may have felt like the beginning of a bull market at the time, but the bulls soon ran out of gas and the stock fell back to the $11 area in early August.
Importance of Business Travel
Optimists might view AAL stock as a wager on an imminent rebound in the airline industry. This optimism is likely misplaced, however.
Corporate travel is an essential component of the travel industry in general. Indeed, estimates from Bank of America analysts state that business trips were responsible for an astonishing $334 billion in revenues last year.
Without robust corporate travel, it’s as if a trap door is opening under American Airlines. Granted, a Covid-19 vaccine should be available to the public at some point in the future. But does this mean that a recovery in the business travel market is imminent?
Don’t count on it. The aforementioned Bank of America analysts don’t expect a rebound business trips until “late 2023 or in 2024.”
No Rebound Coming Soon
That’s disheartening for AAL stock investors to hear, but it’s a reality that must be understood. We’re living in the post-pandemic “new normal,” and a vaccine won’t bring an air-travel recovery overnight.
If you’re not ready to hear what the Bank of America analysts have to say about it, then at least listen to the ominous words of Trivago (NASDAQ:TRVG) CEO Axel Hefer:
Whenever this [pandemic] is over, we will have practiced for more than one year how to interact across very, very big distances. So, we do expect a structural reduction of the business travel market.
If anyone would know what the future might hold for the travel market, it’s the CEO of Trivago. And he’s politely telling us that the revenues are drying up and this situation will persist for a while.
You might have heard that some well-known companies have given their workers the options to work remotely forever. The “new normal” has changed the way today’s business function.
For the foreseeable future, they may be willing to function without air travel, and that’s bad news for American Airlines and its stakeholders.
The Takeaway
It’s time to take the warnings from the Trivago CEO and the Bank of America analysts to heart.
They might not be talking about AAL stock directly, but the message is nonetheless loud and clear. The price of the shares might be low, but the future of the travel market isn’t looking great, so don’t go hunting for value here.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
