American Airlines (NASDAQ:AAL) [Trend Analysis] is one of those companies that is always considered very risky due to obviously being an airline. And we all know airline investment is fraught with danger. Even so, for these 3 reasons below, investors must consider American Airlines as an addition to a well diversified portfolio.
1. Low Price to Earnings Multiple
American Airlines (NASDAQ:AAL) is trading on an estimated forward price to earnings multiple of just 6.15. This is incredibly low, even for an airline. To put it into perspective, the overall market is trading on a forward price to earnings multiple of approximately 19. For this very reason, even with the risk, AAL looks incredible cheap.
American Airlines analysts are estimating annual growth for the next 5 years of 22.8% per annum. This is extremely high and when we look at trailing 12 month earnings this equates to a price to earnings to growth multiple of approximately 0.6. Generally a PEG ratio of under 1 is considered by the market as undervalued, meaning for growth investors in the longer term American Airlines looks cheap.
On top of the growth predicted for American Airlines, the company also pays a small dividend of around 0.75%. While this is quite low, it is still handy that a stock with the growth as expected above can pay some form of dividend, which may very well increase if the growth can be achieved.
American Airlines (NASDAQ:AAL) as shown above appears extremely cheap while offering a small dividend making it a stock that should certainly be considered by investors. Of course investors should be wary of the ups and downs of the airline industry, but at these levels, the risk may be worth taking on for some.