Delta Air Lines, Inc. (NYSE:DAL) led the NYSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Delta Air Lines’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in Delta Air Lines?
Delta Air Lines appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 45.47x is currently well-above the industry average of 19.15x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Delta Air Lines’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Delta Air Lines look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to more than double over the next couple of years, the future seems bright for Delta Air Lines. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in DAL’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe DAL should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on DAL for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for DAL, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 3 warning signs for Delta Air Lines (1 is potentially serious) you should be familiar with.
If you are no longer interested in Delta Air Lines, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
What are the risks and opportunities for Delta Air Lines?
Trading at 73.8% below our estimate of its fair value
Earnings are forecast to grow 10.27% per year
Earnings grew by 4098.8% over the past year
Has a high level of debt
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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.