Free Trial

Why American Airlines’ Plunge Is a Golden Buying Opportunity

American Airlines Boeing 737-800 airplane

Key Points

  • Shares of American Airlines had a tough day on Wednesday after lowering forward guidance.
  • However, one analyst still sees a 50% upside from where shares closed last night. 
  • Technically, there are also several reasons to support the buy argument.
  • 5 stocks we like better than American Airlines Group

A 13% drop in a single session is the stuff of nightmares for most companies, and American Airlines Group Inc NASDAQ: AAL is no different. That happened in Wednesday’s session, as the major carrier gave up effectively all its gains since last November. For context, at one point in March, American Airlines' shares had logged close to 50%, but they’ve struggled since then, and yesterday’s drop will have caused further damage to investors’ confidence.   

The catalyst for the plunge was a bearish update from the company itself, as they lowered forward guidance for Q2 adjusted EPS. With it now expected to land somewhere between $1.00 and $1.15, it was well below the $1.27 consensus estimate. However, the negative news didn’t stop there. 

American Airlines: Tightening Margins

American Airlines Group Today

American Airlines Group Inc. stock logo
AALAAL 90-day performance
American Airlines Group
-0.06 (-0.52%)
(As of 06/13/2024 ET)
52-Week Range
P/E Ratio
Price Target

American Airlines’ margins are also set to tighten. Q2’s adjusted operating margin is now forecasted to be between 8.5% and 10.5%, well off the previously forecasted range of 9.5% to 11.5%. While the company’s total revenue per available seat mile (TRASM), a key metric for the airline industry, had been expected to fall between 1% and 3%, the expected drop here is now forecasted as between 5% and 6%. 

It was a bad update, and it was the last thing a stock struggling to catch a break this year needed. While American Airlines' shares managed to rally into the close and finish well above their low of the day, they still came within $0.50 of last year’s multi-year low. Around the $10.90 mark, this support line was, and maybe still is, the only thing standing between American Airlines’ shares and their lowest prices from the COVID pandemic. 

Bullish Outlook for American Airlines

But it’s not all doom and gloom, especially for those on the sidelines who love a bargain. Despite the lowered guidance and plunging stock, there are reasons to think this could be a solid buying opportunity. Consider that in the aftermath of yesterday’s update, the team over at TD Cowen immediately reiterated their Buy rating on American Airlines’ shares. Sure, they lowered their price target from $18 to $16, but from where the stock closed on Wednesday evening, that’s still pointing to a targeted upside of some 40%. 

That’s not an upside to be sniffed at. Those of us thinking about getting involved will certainly need an iron stomach, as there’s a fair bit of risk, but accordingly, there’s a fair bit of potential reward. Backing up the entry opportunity thesis is the fact that American Airlines stock has a solid level of support around the $10.90 mark. 

Technical Support

This is where the bears ran out of steam last year during the 60% plunge, and it’s fair to expect the bulls to put up a big fight if shares dip down there again. This level was tested several times in 2020, as the stock started its long recovery rally. It held each time, which adds weight to the theory that it will hold again this time. Don’t forget, it was only last month that American Airlines issued strong full-year profit guidance. 

American Airlines Group Inc. (AAL) Price Chart for Thursday, June, 13, 2024

Technically, there are signs that American Airlines is very undervalued right now. The stock’s 25% plunge over the past two weeks has sent American Airlines' relative strength index (RSI) down to 24, indicating extremely oversold conditions. While those considering a position must take yesterday’s lowered guidance seriously, there’s a compelling opportunity available now that may not last much longer.

Should you invest $1,000 in American Airlines Group right now?

Before you consider American Airlines Group, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and American Airlines Group wasn't on the list.

While American Airlines Group currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

5G Stocks: The Path Forward is Profitable Cover

Click the link below and we'll send you MarketBeat's guide to investing in 5G and which 5G stocks show the most promise.

Get This Free Report
Sam Quirke
About The Author

Sam Quirke

Contributing Author

Technical Analysis

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
American Airlines Group (AAL)
4.4423 of 5 stars
Compare These Stocks  Add These Stocks to My Watchlist 

Featured Articles and Offers

Recent Videos

Unlock Growth: Understanding Dividend Yield
Palantir Stock Excluded from S&P 500: Still a Buy?
GameStop Mania: Which Meme Stocks Will Follow?

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines