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As an investor, mistakes are inevitable. But really bad investments should be rare. So consider, for a moment, the misfortune of American Airlines Group Inc. (NASDAQ:AAL) investors who have held the stock for three years as it declined a whopping 74%. That would certainly shake our confidence in the decision to own the stock. And more recent buyers are having a tough time too, with a drop of 57% in the last year. There was little comfort for shareholders in the last week as the price declined a further 2.0%.
Check out our latest analysis for American Airlines Group
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over the three years that the share price declined, American Airlines Group's earnings per share (EPS) dropped significantly, falling to a loss. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. However, we can say we'd expect to see a falling share price in this scenario.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
American Airlines Group shareholders are down 57% for the year, but the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that American Airlines Group is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...
American Airlines Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.