Over the past six months, AerSale’s stock price fell to $7.37. Shareholders have lost 16.6% of their capital, which is disappointing considering the S&P 500 has climbed by 6%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy AerSale, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think AerSale Will Underperform?
Even though the stock has become cheaper, we're swiping left on AerSale for now. Here are three reasons you should be careful with ASLE and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, AerSale grew its sales at a sluggish 3.9% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
AerSale’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 11.1%, meaning it lit $11.09 of cash on fire for every $100 in revenue.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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. Unfortunately, AerSale’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
AerSale falls short of our quality standards. Following the recent decline, the stock trades at 11.8× forward P/E (or $7.37 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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