Maybe a Pine Tree

AMR: American Airlines News

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The bad news about American Airlines (AMR) puzzles me. The bad news about all the airlines puzzles me. The industry was once considered a luxury; now it's considered a necessity. The industry has a hard time improving margins, relying on high priced oil, while attempting to provide 'cheap' fares. It's an industry that charges money for your suitcase full of clothes, yet also makes news if you don't wear the right clothes (or lack thereof). It's an industry that is under constant scrutiny by passengers, security analysts, stockholders, transportation and shipping. It's a mess, and it's an industry that is probably overvalued, yet it also needs to exist.

So, how do you value something that is worth 'nothing'? When I perform a DCF valuation of AMR, I find a price worth less than $0. That sounds bad to me, yet AMR also has a low PE, price/book, and price/cash flow. In some part, the 'value story' is there. Despite the glimmer of hope, I have to pass.

Perhaps I can find some other redeeming qualities for AMR? Optimism won't come from the 'smart money' story where I see a high short interest and insider selling. It won't come from the 'quality' story where I see a high F-score but low accruals.

It won't come from the 'growth' story where I see some growth, but poor earnings growth. It won't come from the 'econ' story where I'm optimistic on 'industrials', but pessimistic on 'airlines'. So I really have a hard time justifying AMR. I know we need the airlines, but to me this is a gamble, some 'distressed' equity funds might like it, but instead of flying I'll pass on the stock and drive to the Northwest Territories this year.