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Why the Stock of Bankrupt LATAM Airlines Jumped 55% Today

By Rich Smith – Updated Jun 2, 2020 at 2:51PM

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Is it a rebound, or just short-sellers collecting their winnings?

What happened

Shares of LATAM Airlines Group (NYSE: LTM), gutted by a bankruptcy filing last week, surged in Tuesday trading and were up a staggering 55% as of 2:42 p.m. EDT today. But the reason for this is not good.

Red bankrupt stamp

Image source: Getty Images.

So what

In LATAM's home country of Chile, The Santiago Times is reporting that COVID-19 infections are soaring, with 105,000 persons infected and more than 1,100 deaths. Brazil, meanwhile, has the highest incidence of coronavirus infections of any other country, barring only the U.S.  

None of this bodes well for any near-term uptick in South American air travel that might help save LATAM. Nor do there appear to be any other headlines offering LATAM much hope.

Now what

To the contrary, this airline is flying into the teeth of a global recession carrying nearly $9 billion in debt, nearly as much as what the company used to do in revenue annually, and nearly 50 times LATAM's trailing annual profits. (Meaning, at the rate things are going, it could take as long as a half-century to pay off all the debt it has accrued.)

If there's any reason why LATAM stock is rising today, I can only imagine it's due to short-sellers covering their positions, and locking in profits from the stock's 88% decline in value over the past year.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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