On this morning’s American Airlines earnings call, just completed, Chairman and CEO Doug Parker opened saying he wasn’t going to comment on recent moves in their stock.
Their stock has been rising with 29% of its float currently shorted and worldwide attention being paid to GameStop.
There’s what I think is an irrational belief that a similar short squeeze phenomenon could be repeated with American, which doesn’t seem to make a lot of sense to me. I am not an investment professional and this is not investment advice. I am not directly invested in either $AAL or $GME.
Did American Airlines Shorts Just Get WSB'd? https://t.co/lFtRCIsW6x
— zerohedge (@zerohedge) January 28, 2021
GameStop isn’t a great business anymore. People download games, they aren’t going into stores to buy them. But they have plenty of cash, enough to survive through to game console releases that should be a boost to their business. They were likely oversold, and retail buying of the stock began as a value play.
The leverage and to the moon trajectory of share price has been driven by the sheer amount of short sales relative to available float, and as prices of the stock rose short sellers were forced to cover. The limited number of shares available to do that meant high demand pushed up price, which caused more requirements to cover, pushing up price even further.
So everyone goes asking, “what’s the next GameStop?” without realizing that there is no next GameStop, not to the same extent or to the same degree. It’s a once-in-a-decade sort of phenomenon and just because American’s shares may be the next-most shorted doesn’t suggest they’ll follow the same trajectory. There’s no reason to believe, for instance, that there are illegal naked shorts involved here.
As a result much of the drive up in price is based on speculation that lacks the original basis in fact that GameStop did, and I believe lacks the same fundamentals that’ll drive continued appreciation. There is no next GameStop.
There’s demand based on hope, that’s driven up price, but it’s worth knowing that American is heavily shorted for a reason, because it has more debt and higher costs than competitors. It financially underperformed competitors before these challenges were exacerbated during the pandemic. So while we’ll eventually return to a new normal, but American is at a disadvantage. And despite a second government bailout if there’s a major U.S. airline that could be forced into bankruptcy it would be American.
Questions around whether the airline’s stock is overly shorted, whether it has enough cash that it won’t be pushed into bankruptcy, what the right share price is are ultimately the normal market questions to be asking. We’ve just added a bit of spillover euphoria over the meme-driven
The most surreal element of this phenomenon, to me, is the consternation on CNBC and in the Wall Street Journal over retail investors treating the market as a casino and beating hedge funds who were treating the market as a casino – we must regulate!
I know this GameStop stuff is funny, but you have to remember this is hurting real people who may be forced to sell their summer house in the Hamptons.
— #SilverYoda (@KrevisMaya) January 28, 2021
Peak schadenfreude was watching Andrew Ross Sorkin on Squawk Box absolutely shocked and appalled by this. He’s literally co-creator of Showtime’s Billions where they do this Every. Single. Episode.
I made about $18K last year trading AAL and JBLU stocks but I wouldn’t touch AAL at these prices.
In my opinion the market is pretty frothy at the moment and I’m waiting for things to settle down a bit before I do much more trading.
Robinhood just restricted trading. Apparently you can only bet on some tables there. In response folks are moving to different Casinos. I don’t think Robinhood will have an IPO this year.
So far, fun to watch.
AAL has been stopped on Robinhood platform
CNBC keeps reporting that Melvin closed their position. However, folks on Reddit think that is likely not the case due to such a large position taking days to cover. We’ll see what happens when January 29 contracts expire.
Low cap is a big part of the game which AAL is not so probably not a good move
There is FAR more “hope” for AA than there is for Gamestop. For AA, all they need is the pandemic to end (and signs are it IS now ending) for them to mint money. Gamestop has to reinvent their business to adapt to the internet gaming age. Hope is now almost always more important to a stock’s valuation than traditional fundamentals (this isn’t a good thing, but it’s the reality of the current market). The problem the redditors will have with AA is that it’s a much bigger, higher profile company with much more sophisticated shorts. The battle will not play out like it did with Gamestop. But don’t be surprised if AA also gets “overvalued” on what YOU think the fundamentals deserve. Hope sells.
AAL has stayed out of bankruptcy solely because of government aid. At some point, fundamentals will dictate AAL’s valuation and its trajectory.
AAL had the highest loss for the 4th quarter by a pretty wide margin and was least able to cut employee expenses, AAL’s vulnerability for a number of years.
it is interesting to watch these market gyrations going on and I don’t support stepping in now- hedge funds have been playing games like this with other investors for years.
However, AAL’s fundamentals remain very weak and its financial outlook has to be the cloudiest of the industry.
Peak schadenfreude was watching Andrew Ross Sorkin on Squawk Box absolutely shocked and appalled by this. He’s literally co-creator of Showtime’s Billions where they do this Every. Single. Episode.
Yes, but on Reddit WSB nobody gets tied up in an S&M bondage scene that I am appalled such a clean cut young man could write. At least they aren’t linking to it
His mother must be appalled.
We didn’t have to sell our house in the Hamptons but these young men ( I am assuming 99% men )hating on Boomers is what led to me restricting any opening trades in this .
Screw them all. (Dr NO laugh )
These last few days have been the funniest since the corrupt old usurper took office last week.
@Joe – Childish political irrelevancies should be on your Instagram account, not a travel blog. I don’t care if you voted for Mickey Mouse for president and neither do the other commentators, stick with the subject at hand.
“I am not an investment professional and this is not investment advice.”
Don’t worry, after reading this post, none of us would mistake you for an investment professional.
The billionaires had taken extremely risky short positions of 120%. They were not going to let the little guys beat them, so they got the SEC to manipulate the stock to a sell only position. Definitely NOT free market capitalism.
AMR is not even a close comparison, at this point.
Short selling is not some hedge funds treating the market as a casino. Short selling is nothing personal against a company. It is done when someone thinks a stock is overvalued and it serves a useful purpose in helping keep stocks from being over valued and even exposing accounting inconsistencies and other questionable practices. Unfortunately, what the reddit crowd was doing was artificially inflating the price. It had nothing to do with determining the true value of the stock. The legality of what the reddit crowd is doing is questionable, since they are coordinating to inflate the price of the stock something current rules prevent institutions from doing. Some people want to suggest they are just taking money from billionaires. People’s pensions are wrapped up with these funds, people’s retirement savings. Some of the non-savvy people who are jumping in on this are going to get wiped out because they have no clue what they are doing.
The hedge funds can pound sand and lose people’s pensions if that what it takes to create change. Maybe AAL can pickup some customer service tips from GameStop before they too fail. With all the tax dollars injected into the airline industry, they should be issuing all of us some stock.
AA DID MUCH BETTER Than the other carriers.
AA HAS THE YOUNGEST FLEET.
DELTA IS THE BIGGEST LOSER!
INVESTED IN VIRGIN ATLANTIC. BANKRUPT!
LATAM. BANKRUPT!
OIL REFINERY. LOL.
AND DELTAS FLEET IS OLD AND OUTDATED!
CHAT THAT UP BUDDY!
Who cares about the airline industry,sleepy JOE will have a plan for them next.Just everyone get ready for the next great bailout.
@ John Luffered 100% Thank you !!!!
@John L
we live in the era of denying facts you don’t like if it doesn’t fit your narrative but 3 quickies.
UA’s fleet is the oldest in the US and was even before covid
DL’s operating revenue decline for the 4th quarter was 65% compared to AA’s 64% even though Delta blocked 1/3 of its seats – which gave it the highest yield in the industry.
AA’s consolidated CASM-ex fuel/charges was 17.59 for the 4th quarter of 2020 compared to DL’s 12.57
AA’s GAAP pre-tax loss for the 4th quarter was $2.8 billion while DL’s was $1.1 B
Delta still has joint ventures (or applications in process) with all of the carriers in which it invested while American led the airline industry in stock buybacks and yet had negative stockholder equity even before covid.
Delta is burning the least amount of cash on a size normalized basis of all US airlines that have reported their 4th quarter and 2020 full year results.
So, every objective measure says that Delta is running a better business than nearly all of the rest of the industry and certainly better than American – but if it makes you feel better to argue otherwise in full caps, go for it.