Delta Air Lines, Inc.'s (NYSE:DAL) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Delta Air Lines, Inc. (NYSE:DAL) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 82%.

Even after such a large jump in price, Delta Air Lines may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.6x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 36x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, Delta Air Lines has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

See our latest analysis for Delta Air Lines

Want the full picture on analyst estimates for the company? Then our free report on Delta Air Lines will help you uncover what's on the horizon.

Is There Any Growth For Delta Air Lines?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Delta Air Lines' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 3.3% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 11% per year growth forecast for the broader market.

In light of this, it's understandable that Delta Air Lines' 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 Bottom Line On Delta Air Lines' P/E

Even after such a strong price move, Delta Air Lines' P/E still trails the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Delta Air Lines' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Delta Air Lines you should know about.

You might be able to find a better investment than Delta Air Lines. 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).

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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.