Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 stocks made the list for top value stocks in the Airlines industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Latest Airlines Stock News

Before choosing which top Airlines stock to buy, be sure to conduct proper due diligence: analyze various financial metrics and look at historical data, public statements and news coverage.

The outlook for the airline industry is relatively negative for the next year. Although May 2021 saw airline travel reach 75% of what it was before the pandemic, most airlines are not going to achieve substantial profits due to a lack of passengers and low-ticket prices. While domestic travel has made a partial recovery, there is still a lack of demand compared to the pre-pandemic era. This is mainly due to high unemployment and foreign countries being behind the United States in terms of vaccination progress. Furthermore, the lack of business travel is unlikely to change, as most companies will wait until the pandemic is fully over to begin letting employees take work-related trips. However, this setback is only temporary as it has already been seen that American and Chinese firms be eager to go back to this method, suggesting that most companies will resume business travel at some point. As a result of the pandemic, new aircraft deliveries have been postponed or cancelled altogether, meaning that airlines will receive lower prices for the newest airplanes well into the future. These lower costs may allow airlines to have greater profit margins in future quarters due to the new innovations coming at lower prices.

Why Focus on Undervalued Airlines Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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3 Undervalued Airlines Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Airlines industry for Friday, December 22, 2023. Let’s take a closer look at their individual scores to see how they measure up against each other and the Airlines industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

SkyWest Inc’s Value Grade

Value Grade:

SkyWest, Inc., through its subsidiary, SkyWest Airlines, Inc. (SkyWest Airlines) offers scheduled passenger service to destinations in the United States, Canada, and Mexico. The Company's segments include SkyWest Airlines and SkyWest Leasing. The SkyWest Airlines segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The Company offers scheduled passenger and air freight service with approximately 1,620 total daily departures to destinations in the United States, Canada, and Mexico. The Company?s flights are operated as Delta Connection, United Express, American Eagle or Alaska Airlines flights.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

SkyWest Inc has a Value Score of 91, which is considered to be undervalued.

When you look at SkyWest Inc’s price-to-sales ratio at 0.74 compared to the industry median at 0.33, this company has a higher price relative to revenue compared to its peers. This could make SkyWest Inc’s stock less attractive for value investors.

Now, let’s assess SkyWest Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 11.0, when compared to the industry median of 6.3, the company may be considered overvalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. SkyWest Inc’s shareholder yield is higher than its industry median ratio of (0.14%). Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. SkyWest Inc’s price-to-book ratio is lower than its industry median ratio of 1.50. This could make SkyWest Inc more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at SkyWest Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. SkyWest Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 6.39. This could make SkyWest Inc more attractive because the lower P/FCF ratio indicates that SkyWest Inc is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

Volato Group Inc’s Value Grade

Value Grade:

Volato Group, Inc. is a full-service private aviation company providing modern ways to enjoy luxury private jets through innovative, efficient, and sustainable solutions. The Company provides an approach to fractional ownership, aircraft management, jet card, deposit, and charter programs. Its fractional programs offer flexible hours and a revenue share for owners in a fleet of HondaJets, which are optimized for missions of up to four passengers. All Volato Part 135 charter flights are operated by its DOT/FAA-authorized air carrier subsidiary (G C Aviation, Inc. d/b/a Volato) or by an approved vendor air carrier. G C Aviation, Inc. is its exclusive Part 135 operator and provides flight services, aircraft management, private aircraft charter services, and maintenance support. Its fleet is primarily composed of the HondaJet HA-420, a jet in the very light jet market segment. The Company’s cloud-based software, Mission Control, is an API-first solution for the management of its business.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Volato Group Inc has a Value Score of 70, which is considered to be undervalued.

Volato Group Inc’s price-earnings ratio is 69.8 compared to the industry median at 12.6. This means that it has a higher price relative to its earnings compared to its peers. This makes Volato Group Inc less attractive for value investors.

Volato Group Inc’s price-to-book ratio is higher than its peers. This could make Volato Group Inc less attractive for value investors when compared to the industry median at 1.50.

You can read more about Volato Group Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

United Airlines Holdings Inc’s Value Grade

Value Grade:

United Airlines Holdings, Inc. is a holding company and its wholly owned subsidiary is United Airlines, Inc. (United). The Company transports people and cargo throughout North America and to destinations in Asia, Europe, Africa, the Pacific, the Middle East and Latin America. The Company, through its wholly owned subsidiary, United and its regional carriers, operates across six continents, with hubs at Newark Liberty International Airport (EWR), Chicago O'Hare International Airport (ORD), Denver International Airport (DEN), George Bush Intercontinental Airport (IAH), Los Angeles International Airport (LAX), A.B. Won Pat International Airport (GUM), San Francisco International Airport (SFO) and Washington Dulles International Airport (IAD). Its hub and spoke system allows it to transport passengers between several destinations with regular service. The Company has contractual relationships with various regional carriers to provide regional aircraft services branded as United Express.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

United Airlines Holdings Inc has a Value Score of 88, which is considered to be undervalued.

United Airlines Holdings Inc’s price-earnings ratio is 5.0 compared to the industry median at 12.6. This means that it has a lower price relative to its earnings compared to its peers. This makes United Airlines Holdings Inc more attractive for value investors.

United Airlines Holdings Inc’s price-to-book ratio is lower than its peers. This could make United Airlines Holdings Inc more attractive for value investors when compared to the industry median at 1.50.

You can read more about United Airlines Holdings Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Airlines Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Airlines stocks as well as other industrys.

Choosing Which of the 3 Best Airlines Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• SkyWest Inc stock has a Value Grade of A.
• Volato Group Inc stock has a Value Grade of B.
• United Airlines Holdings Inc stock has a Value Grade of A.

Now that you have a bit more background about each of the 3 undervalued stocks in the Airlines industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Airlines Stocks

Want to learn more about Airlines stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 3 Undervalued Airlines Stocks for Friday, December 22
• What You Need to Know About Alaska Air Group, Inc.'s Q3 Earnings
• What You Need to Know About Allegiant Travel Company's Q3 Earnings
• What You Need to Know About American Airlines Group Inc's Q3 Earnings

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.