Is American Airlines Setting Up for a Breakdown?

American Airlines Group, Inc. (AAL) is the world’s largest airline by scheduled revenue passenger miles. The company’s wholly-owned subsidiaries are American Airlines, Envoy Aviation Group, PSA Airlines and Piedmont Airlines.

AAL is benefiting from an increase in air-travel demand in the U.S. as more people have gotten vaccinated. This has led to passenger revenue jumping 491% in the second quarter, compared with the same quarter last year. As demand has improved, the company is looking to add routes and broaden its network.

In the most recent quarter, the company had $18 billion in cash, up from $14 billion in the previous quarter, and well above its short-term debt level of $2.8 billion. Revenues are expected to soar 243.3% year over year in the current quarter and 77% for the year. This has led to a Growth Grade of B in our POWR Ratings system.

From a valuation standpoint, the stock is very underpriced based on a trailing P/E of 2.81 and a forward P/E of 7.39. The stock showed bullish momentum from November to March, but performance has been mixed since as shown in the chart below.

Take a look at the 1-year chart of AAL below with my added notations:

Chart of AAL provided by TradingView

AAL has formed key support at around $18.50 (green) over the past several weeks. In addition, the stock is also declining against a down trending resistance line (red). These two lines have AAL stuck within a common pattern known as a descending triangle.

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This is a bearish pattern and a short trade could be made on a break below the $18.50 support level.

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AAL shares rose $0.10 (+0.49%) in premarket trading Monday. Year-to-date, AAL has gained 28.92%, versus a 21.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More…

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