AAR currently trades at $67.76 per share and has shown little upside over the past six months, posting a small loss of 2.6%.
Is now the time to buy AAR, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free .
We don't have much confidence in AAR. Here are three reasons why we avoid AIR and a stock we'd rather own.
Why Is AAR Not Exciting?
The first third-party MRO approved by the FAA for Safety Management System Requirements, AAR (NYSE:AIR) is a provider of aircraft maintenance services
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, AAR grew its sales at a sluggish 3.2% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
AAR has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.1%, lousy for an industrials business.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
AAR historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.4%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
AAR isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 16.5× forward price-to-earnings (or $67.76 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of Charlie Munger’s all-time favorite businesses .
Stocks We Would Buy Instead of AAR
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