Since October 2025, American Airlines has been in a holding pattern, posting a small loss of 3.4% while floating around $11.34. The stock also fell short of the S&P 500’s 2.5% gain during that period.

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Why Do We Think American Airlines Will Underperform?

We're swiping left on American Airlines for now. Here are three reasons we avoid AAL and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, American Airlines grew its sales at a 25.8% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

2. New Investments Bear Fruit as ROIC Jumps

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, American Airlines’s ROIC averaged 1.9 percentage point increases each year over the last few years. This is a good sign, and we hope the company can continue improving.

3. High Debt Levels Increase Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

American Airlines’s $35.97 billion of debt exceeds the $5.84 billion of cash on its balance sheet. Furthermore, its 9× net-debt-to-EBITDA ratio (based on its EBITDA of $3.52 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. American Airlines could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope American Airlines can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

American Airlines falls short of our quality standards. With its shares lagging the market recently, the stock trades at 8× forward EV-to-EBITDA (or $11.34 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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