American Airlines shares are up more than 45% YTD. Should I invest in April?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the outdoors, enjoys… read more.
on Mar 27, 2021
  • American Airlines Group shares have advanced more than 45% since the beginning of 2021
  • COVID-19 pandemic could restrict travel this summer
  • There are certainly better investment opportunities at the moment

American Airlines Group (NASDAQ: AAL) shares have advanced more than 45% since the beginning of 2021, and the current share price stands around $22.9. The airline sector shows signs of recovery, but booking trends are expected to be weak for the next several months.

Fundamental analysis: COVID-19 pandemic could restrict travel this summer

American Airlines Group shares are advancing after the improving guidance, but it will take years to return to the pre-pandemic revenue levels. American Airlines reduced daily cash burn from $100M in April 2020 to $30M in Q4 and expects to generate positive cash flow this month after a year of losses.

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

“Our last three weeks have been the best three weeks since the pandemic hit, and each week has been better than the one prior,” said American Airlines CEO Doug Parker last week.

COVID-19 restrictions have eased across many parts of the U.S., but there is still a long way to fight against this pandemic. The rise of more contagious COVID variants in the last several weeks could add another pressure to the airline travel business.

Some analysts say that this could restrict travel this summer and warned that there is a cautious sentiment around the aviation segment.

“U.K. government warned people not to book their summer vacations just yet due to the risk of new COVID-19 variants and restrictions. Paris lockdown, Italy’s national restrictions, and rising concern in Germany over infection rates are being reflected in growing fears that the second summer of travel will be lost,” said Goodbody analyst Mark Wallace.

My opinion is that this stock is still a risky investment, and probably it is not the right moment for buying this stock. American Airlines business will remain under pressure for a while, and there are several fundamental reasons why the current “stock rally” could be stopped.

The company has nearly $30B of net debt, and it needs more than one billion dollars annually just to service this debt. American Airline’s market capitalization is almost higher than it was pre-crisis, and there are certainly better investment opportunities at the moment.

Technical analysis: The risk/reward ratio is not good enough for “value” investors

Technically looking, American Airlines shares could advance above the current price levels in April, but the risk/reward ratio is not good enough for “value” investors.

Data source: tradingview.com

If the price jumps above $25, it would be a signal to trade shares, and the next target could be around $30, but if the price falls below the $20 support level, it would be a firm “sell” signal.

Summary

American Airlines Group shares have advanced more than 45% since the beginning of 2021, and the current share price stands around $22.9. I think this stock is still a risky investment, and probably it is not the right moment for buying this stock.

Invest in crypto, stocks, ETFs & more in minutes with our preferred broker, eToro
10/10
67% of retail CFD accounts lose money