FTAI Aviation stock (NASDAQ: FTAI), an aircraft leasing company, saw a sharp 24% fall on Wednesday, Jan 15. This can be attributed to a report published by Muddy Waters Research alleging that FTAI manipulates its financials. FTAI is accused of artificially inflating its financial metrics by overstating its aftermarket business size, misrepresenting engine sales as component sales, manipulating profit margins through depreciation practices, and artificially boosting sales numbers. []
This didn’t sit well with investors and the stock saw a sharp decline. Conversely, for a stock that has rallied lately, see What’s Happening With ISRG Stock?
FTAI has had a strong run, rising 154% since the beginning of 2024, outperforming the broader markets. However, looking at a slightly longer period, the increase in FTAI stock over the last four-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 29% in 2021, -23% in 2022, 182% in 2023, and 215% in 2024. The Trefis High Quality Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period.
Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could FTAI face a similar situation as it did in 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? Now, the recent report has clearly got the investors on the back foot. Despite its recent fall, FTAI stock trades at 7.6x trailing revenues, higher than the stock’s average P/S ratio of 5.3x over the last five years. The reason investors assigned a higher valuation multiple to FTAI is the solid sales growth over the recent years. FTAI saw a whopping 5x growth in sales from a little under $300 million in 2020 to over $1.5 billion for the last twelve months period. Notably, the $190 average of analysts price estimates implies a solid 60% upside from the current levels.
Now, FTAI is yet to release a statement in response to the allegations made by Muddy Waters Research. If the company is able to defend its financials, it will bode well for its stock. On the other hand, it may see more of a correction if the allegations are found to be true. We think a more cautious approach may be advisable — investors might want to hold off on picking FTAI shares in the current dip, until there’s more clarity around these developments and investigations.
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