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American Airlines stock surges as retail investors continue war on short sellers

American Airlines’ beleaguered stock surged Thursday morning, building on the momentum retail traders created that carried Grapevine-based GameStop on a ridiculous run.

Shares of Fort Worth-based American traded 20% to 50% higher in pre-market trading, even after the company reported a $2.2 billion loss for the fourth quarter and an $8.9 billion loss for coronavirus-ravaged 2020.

A revolt against short sellers on Wall Street has turned some struggling stocks into popular underdogs, led by GameStop’s one-week run that sent it surging by nearly 1,000%.

Much of that started with a group on the popular social media site Reddit called WallStreetBets that began taking aim at short sellers, who users claimed were intentionally driving down the price of stocks for profit. A handful of companies such as AMC, GameStop and Blackberry saw a surge in stock prices after retail stock traders took up the cause.

According to Fox Business News, the Reddit group that started the GameStop surge pointed out that American Airlines’ shares were also heavily shorted. American said investors had shorted about 25% of its shares, about 160 million in total.

“Thoughts? AAL majorly shorted when all the other airlines aren’t,” Fox Business News quoted one Reddit user as saying on the Wall Street Bets subreddit.

That may have been responsible for the 6% increase in American’s stock price Wednesday while other airline stock prices fell.

By late morning Thursday, the stock price had dropped to just under $18 but still had gained 8% for the day. It closed at $18.10 a share, up 9.3% for the day.

Equity analyst Colin Scarola from CFRA Research said that with American’s stock, “fundamentals are taking a back seat to the momentum and retail investor interest as the primary drivers of share prices in today’s market.”

“Considering AAL is well known to retail investors, and that it has high short interest (around 30% of shares outstanding), we think the stock is a high risk for one of the recent retail investor driven short squeezes we’ve seen play out,” Scarola wrote in an investor update.

Still, the stock price increase is welcome news to American, which has suffered more on Wall Street than its competitors during the COVID-19 pandemic.

After starting 2020 at more than $26 a share, its stock fell below $9 a share in May as the company was losing nearly $100 million a day. A modest but sluggish coronavirus recovery has bolstered the stock a bit.

American Airlines CEO Doug Parker briefly acknowledged the movement in Thursday’s call with investors and reporters.

“I want to preemptively state that we will not be commenting or answering questions on the recent activity in our stock price,” he said. “As a rule, we don’t speculate on the day-to-day movement in our stock price, and we’ll stick to that today.”

Source: Dallas News

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