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American Airlines Stock Loses 25% Over Coronavirus Fears. Is It Time To Buy?

Global markets have reacted strongly to the increase in cases of the novel coronavirus outside of China. Airline stocks have taken a particularly big beating, with American Airlines (NASDAQ: AAL) stock shedding about 25% of its value over the last 4 days.

In this analysis, we compare how American Airlines’ stock reacted to previous epidemics such as SARS (2003) and H1N1 (2009) to understand whether the stock could go lower or if it’s time to get in. Overall, we find that the best time to buy during such outbreaks has historically been just before the disease peaks. While it could be difficult to call a peak for COVID-19, SARS cases peaked roughly 6 weeks after the disease was identified as being meaningful (reported to WHO) and about 18 weeks after it was first detected.

How has American Airlines stock reacted to the coronavirus outbreak so far?

American airlines stock price

How American Airlines Stock reacted to the SARS & H1N1 outbreak

Timeline

  • 1st Detection (Outbreak in Guangdong, China) Nov 16, 2002
  • Identified meaningful (China notifies WHO) Feb 10, 2003
  • Peak Spread (Cases peak in Hong Kong) Mar 30, 2003
  • Significant decline (Schools re-open in HK, advisories lifted) April 30, 2003
  • +3 Months July 30, 2003

#1.1 How Did The Stock Price For American Airlines & Its Rivals React To SARS?

  • American Airlines’ stock declined from $7.20 when SARS was first detected to about $3.10 when it was identified to be meaningful.
  • The stock fell further to about $2.10 as the disease peaked
  • It recovered to levels of $4.50 when the outbreak saw a significant decline and rose further to $9.10 in the following 3 months.
  • AAL stock declined 31% between the time SARS was identified as a meaningful threat to the peak phase, while it rose by over 100% as the number of cases dropped. The lowest price over the period of the outbreak was $1.40, on March 12, just before the infection peaked.

#2. H1N1 Pandemic of 2009

Timeline

  • 1st Detection (First confirmed case in the U.S.) Mar 30, 2009
  • Identified meaningful (WHO issues first disease outbreak notice) Apr 24, 2009
  • Peak Spread (CDC says H1N1 may have peaked) Nov 30, 2009
  • Significant decline (CDC says cases of influenza declining steadily) Dec 19, 2009
  • + 3 Months Mar 19, 2010

#2.1 How Did The Stock Price For American Airlines & Its Rivals React To H1N1?

  • American Airlines’ stock rose from $2.60 when H1N1 was first detected to about $4.80 when it was identified to be meaningful.
  • The stock fell to about $3.50 as the disease peaked
  • It recovered to levels of $4.50 when the outbreak saw a significant decline and rose further to $7.10 in the following 3 months.
  • AAL stock declined 27% between when H1N1 identified as a meaningful threat to the peak phase, while it rose by 30% as the number of cases dropped. The lowest price over the period of the outbreak was $2, on July 20, 2009.

CONCLUSION

  • Based on the above analysis, the best time to BUY during such outbreaks is around when the disease peaks.
  • While it could be difficult to call a peak for COVID-19, considering that the cases of new infection appear to be moderating in China but are increasing overseas, it’s worth noting that SARS cases peaked roughly 6 weeks after the disease was identified as being meaningful (reported to WHO) and about 18 weeks after it was first detected.

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