Does SkyWest Still Offer Value After Its 495% Three Year Surge?

• If you have been wondering whether SkyWest at around $107 a share is still good value after its big comeback, you are not alone. This article is designed to walk you through that question step by step.
• The stock has climbed 5.2% over the last week, 10.6% over the past month, and 495.2% over three years, which naturally raises the question of how much upside, or downside, might be left from here.
• Recently, investors have been focused on SkyWest’s progress in rebuilding regional capacity and securing long term flying agreements with major carriers. Both of these factors help underpin confidence in its future cash flows. The market has also been reacting to industry wide headlines about pilot supply constraints easing and regional airlines regaining negotiating power, which adds useful context to the stock’s renewed momentum.
• On our framework, SkyWest scores a 5 out of 6 on valuation checks, suggesting it looks undervalued on most of the metrics we track. You can see the detailed breakdown in our valuation score. In the sections that follow we will unpack what different valuation approaches say about SkyWest, then finish with a practical way to think about what the market is really pricing in today.

Find out why SkyWest's 0.2% return over the last year is lagging behind its peers.

Approach 1: SkyWest Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth today by projecting the cash it can generate in the future and discounting those cash flows back to their present value.

For SkyWest, the latest twelve month Free Cash Flow is about $444.8 million. Analysts provide detailed forecasts for the next few years, and beyond that Simply Wall St extrapolates the trend, assuming more moderate growth over time. Under this 2 Stage Free Cash Flow to Equity approach, SkyWest’s Free Cash Flow is projected to reach roughly $739.9 million in ten years.

When all these future cash flows are discounted back, the model arrives at an intrinsic value of about $218.39 per share. Compared with the current share price around $107, the DCF suggests the stock is trading at a 50.8% discount. This indicates SkyWest is materially undervalued on cash flow fundamentals.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests SkyWest is undervalued by 50.8%. Track this in your watchlist or portfolio, or discover 907 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for SkyWest.

Approach 2: SkyWest Price vs Earnings

For a profitable company like SkyWest, the Price to Earnings, or PE, ratio is a useful way to gauge value because it directly compares what investors pay for each dollar of current earnings. In general, faster growth and lower risk justify a higher PE, while slower growth and higher uncertainty usually mean a lower, more conservative multiple is appropriate.

SkyWest currently trades on a PE of about 9.9x. That is slightly above the Airlines industry average of roughly 9.3x, but well below the broader peer group average of around 18.6x. To move beyond simple comparisons, Simply Wall St uses a Fair Ratio, which estimates what PE multiple would be reasonable given SkyWest’s earnings growth outlook, profitability, industry, market cap and risk profile. For SkyWest, this Fair Ratio is about 12.0x.

Because the Fair Ratio incorporates growth, margins and risks, it provides a more tailored benchmark than looking only at peers or the industry. Comparing 9.9x to the 12.0x Fair Ratio suggests the market is still pricing SkyWest at a discount to what its fundamentals would normally warrant.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your SkyWest Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of SkyWest’s story with the numbers behind its future revenue, earnings and margins, and ultimately the fair value you think is reasonable.

A Narrative on Simply Wall St is your own, structured storyline for a company, where you spell out what you believe will drive its business, translate that into a financial forecast, and see the fair value that falls out of those assumptions.

Because this process is built into the Narratives tool on the Community page, used by millions of investors, you can quickly compare your fair value to SkyWest’s current share price to help inform whether it appears more attractive to buy, hold, or trim in a diversified portfolio.

Narratives update dynamically as new information like earnings reports or major news arrives, so your forecast and fair value can evolve with the story, and different investors might reasonably land on very different fair values for SkyWest, for example anywhere between about $108 and $132, depending on how optimistic or cautious they are about growth, margins and risk.

Do you think there's more to the story for SkyWest? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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