American Airlines (NASDAQ:AAL) is the latest stock to begin feeling the now infamous effect of retail investors from Reddit this month. Despite posting its largest annual loss ever for 2020, AAL stock popped on Jan. 27 and again the next day.
This was not due to the company’s performance. Instead, traders from the subreddit r/WallStreetBets (WSB) forum began to talk up AAL shares. Then, with the stock on the rise, American announced it would issue additional shares. American Airlines is currently up over 10% in 2021. So, is now the time to invest?
Redditors may be trying to get the better of AAL short-sellers, but this company’s business is still in shambles. And, despite assurances, the hope for its recovery this year is overly optimistic.
AAL Stock: Q4 Results and Record Losses
On Jan. 28, American Airlines reported a brutal fourth quarter and an even more brutal full-year 2020.
First off, Q4 revenue of $4 billion was down 64% year-over-year (YOY). That decline and the adjusted loss of $3.86 per share were slightly better than had been expected, but still very painful. However, the company’s full-year loss for 2020 told the bigger story about the massive damage done by the pandemic. The airline company lost $8.9 billion for the year, making for an adjusted net loss of $19.66 per share of AAL stock. Finally, it is expecting to continue a cash burn rate of $30 million per day through the current quarter.
In the report, CEO Doug Parker assured investors that this year will be a period of recovery for the airline:
“As we look to the year ahead, 2021 will be a year of recovery. While we don’t know exactly when passenger demand will return, as vaccine distribution takes hold and travel restrictions are lifted, we will be ready.”
Despite Parker’s assurances, though, I’m not convinced we’ll see much of a recovery in air travel this year. As I wrote a few weeks ago, the vaccination rollout is likely to take most of the year. Plus, legendary businessman Bill Gates is predicting that 50% of business travel may be gone for good. Finally, we are still in the midst of a recession and that means consumers are liable to cut back on extras like vacation travel.
At this point, I think even a 2022 return to normal for airlines may be optimistic.
Reddit Gets Involved, American Decides to Sell More Shares
Despite the rough quarter and the dismal full-year numbers, though, AAL stock experienced a rally on Jan. 27 and Jan. 28. Shares in the airline popped over 17% in two days.
But the major reason behind that rally was the involvement of retail investors following Reddit’s WSB forum. Targeting short-sellers, the Redditors were buying AAL until retail trading brokerages like Robinhood added American shares to its restricted stock list.
So, clearly the rally is based on just hope and hype. Yet, in the midst of the rally, American announced it was authorizing the sale of an additional $1.1 billion in stock.
Bottom Line
AAL stock’s performance through last November and early December — as well as last week’s rally — has failed to impress analysts. In fact, most analysts are still in a selling mood — those tracked by CNN have given it a median target of $12, well below it’s current price.
The bottom line is that shares in this company are still down nearly 40% over the past one year, despite even an uptick through the last few months. Plus, there is nothing on the immediate horizon that would indicate a return to normal operations for the airline. Even with the arrival of multiple Covid-19 vaccines, it could be years before travel returns to some semblance of normalcy. And the company’s lucrative business travel may never fully recover.
Right now, AAL is rated an “F” in my Portfolio Grader. With continued cash burn, the release of new shares, the pandemic still raging and 2020 going down as the biggest annual loss in company history, I don’t buy into the “this is a recovery year” story. Throw the volatile involvement of Reddit traders into the mix and AAL stock remains a hard pass.
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.
