SkyWest, Inc. (NASDAQ:SKYW) Stock Catapults 26% Though Its Price And Business Still Lag The Market

SkyWest, Inc. (NASDAQ:SKYW) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

In spite of the firm bounce in price, SkyWest may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.1x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about SkyWest. View them for free.

With earnings growth that's superior to most other companies of late, SkyWest has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for SkyWest

Keen to find out how analysts think SkyWest's future stacks up against the industry? In that case, our free report is a great place to start.

How Is SkyWest's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as SkyWest's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 222% last year. The strong recent performance means it was also able to grow EPS by 383% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 3.9% per annum during the coming three years according to the five analysts following the company. With the market predicted to deliver 10% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that SkyWest's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The latest share price surge wasn't enough to lift SkyWest's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that SkyWest maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for SkyWest that we have uncovered.

You might be able to find a better investment than SkyWest. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.