Is AAR (AIR) Still a Buy at All-Time Highs? Contrasting Bullish Growth Narratives with Valuation Risks

AAR Corporation (AIR) has surged to all-time highs in 2025, driven by robust earnings growth, strategic innovation, and a rebound in aerospace demand. Yet, as the stock trades at a price-to-earnings (P/E) ratio far exceeding industry benchmarks, investors face a critical question: Is AIR still a buy, or has the market priced in too much optimism? This analysis weighs the company's compelling growth narrative against valuation risks, using recent data to assess whether the stock remains undervalued or has become a speculative overreach.

Bullish Growth Narratives: Earnings Momentum and Strategic Innovation

AAR's recent performance has defied skepticism. For Q1 2026, the company reported earnings per share (EPS) of $1.08, surpassing estimates, while revenue hit $740 million-a 13% year-over-year increase. Analysts project this momentum to continue, with 2025 EPS expected to reach $4.52 (a 1,192% jump from 2024) and 2026 EPS forecasted at $5.32, reflecting 17.55% growth. These figures underscore AAR's ability to capitalize on post-pandemic aerospace recovery and its expanding Parts Supply business, which drove a 20% organic sales increase in 2025.

Strategic initiatives further bolster the bullish case. AAR's Trax digital platform, designed to streamline aircraft maintenance workflows, has secured key partnerships with Amerijet International Airlines and SIA Engineering Company. Such innovations position AAR to capture market share in the digital transformation of aerospace services, a trend expected to accelerate. Additionally, margin expansion-from 11.6% in 2024 to 12.4% in 2025 highlights operational efficiency gains, reinforcing confidence in sustainable profitability.

Valuation Risks: A P/E Discrepancy and Execution Uncertainties

Despite these positives, AAR's valuation metrics raise caution. The stock currently trades at a P/E ratio of 112–114x, dwarfing the aerospace industry average of 36.5–38.9x and the peer group average of 50.2–52.3x according to Yahoo Finance. Simply Wall St's analysis suggests a "fair" P/E of 50–53x, given AAR's growth trajectory and margins according to Simply Wall St, implying the stock is overvalued by traditional standards. This disconnect highlights the market's reliance on forward-looking optimism rather than current fundamentals.

However, a discounted cash flow (DCF) analysis complicates this narrative. Using a two-stage free cash flow model, AAR's intrinsic value is estimated at $182.05–$191.45 per share, significantly above its current price. This suggests the market may be underpricing AAR's long-term cash flow potential, particularly as improvements are projected to accelerate by 2028. Yet, such a valuation hinges on the assumption that AAR can sustain its earnings growth and margin expansion-a challenge given intensifying competition from original equipment manufacturers (OEMs) and the risks of scaling digital initiatives like Trax according to Yahoo Finance.

Balancing the Equation: A Tug-of-War Between Growth and Caution

The key to AAR's investment appeal lies in reconciling these conflicting signals. On one hand, the company's earnings trajectory, margin improvements, and strategic bets on digital tools like Trax justify a premium valuation. On the other, the P/E ratio's divergence from peers and execution risks-such as OEMs encroaching on AAR's service offerings-pose meaningful threats.

For long-term investors, the DCF analysis offers a compelling argument: if AAR can deliver on its projected cash flow growth, the stock may still hold upside. However, shorter-term traders might view the current P/E as a warning sign, particularly if near-term earnings fail to meet lofty expectations. The recent 13% revenue growth and 19% Adjusted EBITDA increase in 2025 suggest AAR is on track, but consistency will be critical.

Conclusion: A High-Stakes Bet on Aerospace's Future

AAR's stock remains a double-edged sword. The bullish case rests on its ability to leverage aerospace recovery, digital innovation, and margin discipline to drive earnings growth. Yet, the valuation premium demands a high degree of confidence in AAR's long-term execution. For investors who believe in the company's strategic vision and the aerospace sector's resilience, AIR could still offer rewards. However, those wary of overvaluation or execution risks may prefer to wait for a pullback. In a market where optimism often outpaces fundamentals, AAR exemplifies the delicate balance between growth potential and prudence.