When Should You Buy Southwest Airlines Co. (NYSE:LUV)?

By
Simply Wall St
Published
December 07, 2020

Southwest Airlines Co. (NYSE:LUV) led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Southwest Airlines’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Southwest Airlines

What is Southwest Airlines worth?

Great news for investors – Southwest Airlines is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is $62.94, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. What’s more interesting is that, Southwest Airlines’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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.

Can we expect growth from Southwest Airlines?

NYSE:LUV Earnings and Revenue Growth December 7th 2020

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. In the upcoming year, Southwest Airlines' earnings are expected to increase by 57%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Since LUV is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on LUV for a while, now might be the time to enter the stock. Its buoyant future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy LUV. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.

So while earnings quality is important, it's equally important to consider the risks facing Southwest Airlines at this point in time. Our analysis shows 3 warning signs for Southwest Airlines (1 is concerning!) and we strongly recommend you look at them before investing.

If you are no longer interested in Southwest Airlines, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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. 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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