At the American Airlines ‘State of the Airline’ meeting with employees following Thursday’s earnings call, CEO Doug Parker explained why he believes American’s shares have performed horrendously.
I think [the American Airlines stock] is undervalued. I generally think that. I think that more than usual. But don’t use that as personal investment advice, you should make your own decisions.
The reason I think we’ve gotten ourselves undervalued. When I say undervalued what I mean by that is the stock is selling for less than I believe it’s worth. We’ve gotten ourselves in that position because we’ve underperformed. That’s what happens.
Often the stock market cares about momentum. And much of those who buy and sell stocks care as much about trends as they care about absolute value. While I may believe it’s selling for a lot less than it’s worth, what I know is that when we go run a summer like we ran our stock will fall. It doesn’t just affect our team and our customers it affects our shareholders…that’s why in the last month or two it has fallen more than others have fallen.
And the good news is when -we shift our momentum, and we start doing all the things that I told you we intend to do it should indeed increase. But it’s not going to do it because we say those things are going to happen. It’s going to do it because we go do those things. And that’s what we need to do.
The stock follows performance, it doesn’t project performance as much as we’d like it to. We need to go produce. I’m really excited about our ability to go do that. And I suspect when we do you will see our stock respond accordingly.
Copyright: rido / 123RF Stock Photo
American has been attributing its troubles to the grounding of the Boeing 737 MAX and to a work slowdown by mechanics. However the airline’s poor stock performance predates both of those things. Shares peaked in January 2018. Moreover the big summer slide in share price didn’t come until mid-July, long after mechanics (and management failures) hampered the airline’s performance.
Regardless, Doug Parker’s theory of the stock market is intriguing:
- He’s a momentum investor
- He believes the market is backward-looking
I’m not certain those two things are entirely consistent with each other. There’s significant academic research in support of momentum as a factor in pricing stocks. However aside from expectations of the future being formed by past performance it’s hardly a majority view than share prices reflect past performance rather than likely future performance. Here’s a more plausible theory that explains pricing movements of airline stocks.