Today we’re going to take a look at the well-established Delta Air Lines, Inc. (NYSE:DAL). The company’s stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$62.03 at one point, and dropping to the lows of US$21.35. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Delta Air Lines’s current trading price of US$22.48 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Delta Air Lines’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is Delta Air Lines worth?
According to my price multiple model, which makes a comparison between the company’s price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Delta Air Lines’s ratio of 3.07x is trading slightly above its industry peers’ ratio of 3.03x, which means if you buy Delta Air Lines today, you’d be paying a relatively reasonable price for it. And if you believe that Delta Air Lines should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Delta Air Lines’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Delta Air Lines?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -2.8% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Delta Air Lines. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? DAL seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on DAL, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on DAL for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on DAL should the price fluctuate below the industry PE ratio.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Delta Air Lines. You can find everything you need to know about Delta Air Lines in the latest infographic research report. If you are no longer interested in Delta Air Lines, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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