Reassessing SkyWest’s Value After 1.9% Weekly Rise and Strong Cash Flow Outlook

If you have been eyeing SkyWest lately, wondering if now is the moment to grab a stake or sit tight, you are far from alone. The stock has kept investors guessing, recently closing at $99.07 after some bumpy trading sessions. Over the past week, SkyWest’s price has crept up by 1.9%, balancing out a trickier month where shares dipped 4.4%. While year-to-date returns sit at -2.0%, the bigger picture is hard to ignore. Over the past three years, the stock has soared 460.7%. The five-year return clocks in at 193.6%, which is clear evidence that steady performance and market shifts have generated substantial wealth for long-haul investors.

Some of these moves can be traced to wider market optimism about regional airlines adapting to new travel patterns and evolving industry economics. SkyWest’s resilience has kept it firmly in the spotlight, especially among those seeking quality in the often-volatile aviation sector.

But dazzling numbers are just the beginning. What truly jumps out for value-minded investors is the company’s valuation score. Out of a possible six checks for undervaluation, SkyWest scores a 5. That is a standout result. That tells us that, at least by many conventional standards, the stock is undervalued almost across the board.

So how does SkyWest look through the lens of different valuation tools, and is that the full story? Let’s peel back the next layer. At the end of our analysis, I’ll share the often-overlooked approach that can give you even more insight into a company’s worth.

Why SkyWest is lagging behind its peers

Approach 1: SkyWest Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model aims to estimate the value of a company by projecting its future cash flows and discounting them back to today’s value. This approach helps investors look beyond short-term market swings and focus instead on the core cash generation the business can reliably deliver over time.

For SkyWest, the latest Twelve Month Free Cash Flow stands at $312.5 Million. Analyst forecasts see Free Cash Flow rising to $546 Million by 2027. In addition, Simply Wall St extrapolates cash flow growth and projects $730.8 Million by 2035, with annual increases moderating over time. All projections are in USD.

Using these figures, the intrinsic value of SkyWest is calculated at $204.39 per share. Compared with the recent share price of $99.07, the model implies the stock is trading at around a 51.5% discount to its underlying worth. By this method, SkyWest appears substantially undervalued in today’s market.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests SkyWest is undervalued by 51.5%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: SkyWest Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies because it helps investors quickly gauge how the market values each dollar of earnings. For firms like SkyWest that have steady profits, the PE ratio offers a direct comparison point with peers and the broader industry.

However, a company’s “normal” or “fair” PE ratio depends on more than just profits. Market participants consider growth prospects and risks. Higher future growth in earnings often justifies a higher PE, while greater risk or uncertainty can pull it lower.

At the moment, SkyWest trades at a PE ratio of 9.8x. This is almost identical to the average for the Airlines industry at 9.7x and significantly lower than its peer group average of 21.1x. On the surface, this might suggest the stock is attractively priced, but there is more nuance to consider.

This is where Simply Wall St’s proprietary “Fair Ratio” comes into play. Rather than relying solely on peer or industry averages, the Fair Ratio estimates the PE multiple SkyWest deserves. It factors in specifics like earnings growth, profit margins, industry dynamics, market capitalization, and risks, providing a tailored benchmark instead of a single average value.

For SkyWest, the Fair Ratio is calculated at 10.8x. With the current PE at 9.8x, the difference is exactly 1.0x. This signals the market is undervaluing the company relative to its fundamentals and outlook.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your SkyWest Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your story about a company’s future, the reasons and personal assumptions behind what you believe SkyWest is worth, including forecasts for its revenue, profits, and margin trends.

With Narratives, you link SkyWest’s unique story, including recent strategies, market shifts, risks, and opportunities, to your own financial forecasts and calculate a fair value. Instead of only relying on standard valuation models, you can easily tie together your research, outlook, and numbers in one place.

Narratives are available on Simply Wall St’s Community page, trusted by millions of investors, making it simple and accessible for everyone to craft their investment view. You can see how your Fair Value compares to the current share price, which helps you decide when to buy or sell based on your convictions.

Because Narratives update dynamically with fresh news and earnings, you always have the most relevant perspective. For example, one investor using optimistic growth expectations might estimate SkyWest’s fair value at $131.80, while another, focusing on margin risks and cost pressures, could see it as much lower, all based on their personal narrative.

Do you think there's more to the story for SkyWest? Create your own Narrative to let the Community know!

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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