AerSale (ASLE)

Aerospace and defense company AerSale (NASDAQ:ASLE) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 27.4% year on year to $65.78 million. Its non-GAAP loss of $0.05 per share was significantly below analysts’ consensus estimates.

Company Overview

Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ:ASLE) delivers full-service support to mid-life commercial aircraft.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

AerSale’s competitors include Park Aerospace (NYSE:PKE), Ducommun (NYSE:DCO), and Astronics (NASDAQ:ATRO)

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. AerSale’s demand was weak over the last five years as its sales fell at a 2% annual rate. This was below our standards and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AerSale’s recent performance shows its demand remained suppressed as its revenue has declined by 6.2% annually over the last two years.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Products and Services, which are 56.4% and 32.2% of revenue. Over the last two years, AerSale’s Products revenue averaged 23.7% year-on-year declines while its Services revenue averaged 7.5% declines.

This quarter, AerSale missed Wall Street’s estimates and reported a rather uninspiring 27.4% year-on-year revenue decline, generating $65.78 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 23.5% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.

AerSale was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.9% was weak for an industrials business.

Looking at the trend in its profitability, AerSale’s operating margin decreased by 11.1 percentage points over the last five years. AerSale’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, AerSale generated an operating profit margin of negative 10.1%, down 15.3 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AerSale’s full-year EPS dropped significantly over the last four years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, AerSale’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Sadly for AerSale, its EPS declined by more than its revenue over the last two years, dropping 83%. This tells us the company struggled to adjust to shrinking demand.

We can take a deeper look into AerSale’s earnings to better understand the drivers of its performance. AerSale’s operating margin has declined by 9 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, AerSale reported EPS at negative $0.05, down from $0.10 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects AerSale to perform poorly. Analysts forecast its full-year EPS of $0.02 will hit $0.47.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 12.3%, meaning it lit $12.27 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that AerSale’s margin expanded by 15.5 percentage points during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

AerSale burned through $47.63 million of cash in Q1, equivalent to a negative 72.4% margin. The company’s cash burn increased from $25.05 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

AerSale historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

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. Over the last few years, AerSale’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

AerSale reported $4.69 million of cash and $31.24 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $22.72 million of EBITDA over the last 12 months, we view AerSale’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $5.95 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its revenue missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 10.7% to $6.28 immediately following the results.

Updated: May 21, 2025 at 11:33 PM EDT

Before deciding whether to buy AerSale or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

AerSale falls short of our quality standards. For starters, its revenue has declined over the last five years. And while its rising cash profitability gives it more optionality, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining EPS over the last four years makes it a less attractive asset to the public markets.

AerSale’s P/E ratio based on the next 12 months is 12.7x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $7.50 on the company (compared to the current share price of $5.97).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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