Over the past six months, AerSale has been a great trade, beating the S&P 500 by 16.9%. Its stock price has climbed to $8.53, representing a healthy 22.4% increase. This was partly thanks to its solid quarterly results, and the run-up 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? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think AerSale Will Underperform?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why you should be careful with ASLE and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, AerSale’s sales grew at a sluggish 3.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector. 
2. Cash Burn Ignites Concerns
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.
While AerSale posted positive free cash flow this quarter, the broader story hasn’t been so clean. 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 11.7%, meaning it lit $11.72 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. 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.
Final Judgment
We see the value of companies helping their customers, but in the case of AerSale, we’re out. With its shares outperforming the market lately, the stock trades at 25.8× forward P/E (or $8.53 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of AerSale
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