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Spirit Airlines: Is it a Solid Choice for Value Investors?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Spirit Airlines, Inc. (SAVE - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Spirit Airlines has a trailing twelve months PE ratio of 12.45, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.20. If we focus on the stock’s long-term PE trend, the current level puts Spirit Airlines’ current PE ratio below its midpoint over the past five years, with the number having risen rapidly over the past few months.
However, the stock’s PE compares tad unfavorably with the Zacks classified Transportation - Airline sector’s trailing twelve months PE ratio, which stands at 9.82. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Spirit Airlines has a forward PE ratio (price relative to this year’s earnings) of just 12.91, so it is fair to say that a slightly more value-oriented path may be ahead for Apple stock in the near term too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Spirit Airlines’ PEG ratio stands at just 1.63, compared with the Zacks Transportation-Airline industry average of 1.43. This suggests a little overvalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Spirit Airlines currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Spirit Airlines a solid choice for value investors, and some of its other key metrics make this pretty clear too.
What About the Stock Overall?
Though Spirit Airlines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘A’. This gives SAVE a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen two analysts go higher in the past sixty days compared to two lower, while the full year estimate has seen four up and one down in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has dropped 3.3% in the past two months, while the full year estimate has decreased roughly 3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite the somewhat mixed estimate revision trend, the stock has a long-term expected earnings growth of 7.9%. Furthermore, the stock sports a Zacks Rank #2 (Buy) indicating robust fundamentals and expectations of outperformance in the near term.
Bottom Line
Spirit Airlinesis an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the Top 25%) and a solid Zacks Rank instills investor confidence.
However, it is hard to get too excited about this company overall as over the past two years, the Zacks Transportation-Airline industry has underperformed the broader market, as you can see below:
Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this robust value metrics, and we believe that we have a strong value contender in Spirit Airlines.
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Spirit Airlines: Is it a Solid Choice for Value Investors?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Spirit Airlines, Inc. (SAVE - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Spirit Airlines has a trailing twelve months PE ratio of 12.45, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.20. If we focus on the stock’s long-term PE trend, the current level puts Spirit Airlines’ current PE ratio below its midpoint over the past five years, with the number having risen rapidly over the past few months.
However, the stock’s PE compares tad unfavorably with the Zacks classified Transportation - Airline sector’s trailing twelve months PE ratio, which stands at 9.82. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Spirit Airlines has a forward PE ratio (price relative to this year’s earnings) of just 12.91, so it is fair to say that a slightly more value-oriented path may be ahead for Apple stock in the near term too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Spirit Airlines’ PEG ratio stands at just 1.63, compared with the Zacks Transportation-Airline industry average of 1.43. This suggests a little overvalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Spirit Airlines currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Spirit Airlines a solid choice for value investors, and some of its other key metrics make this pretty clear too.
What About the Stock Overall?
Though Spirit Airlines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘A’. This gives SAVE a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen two analysts go higher in the past sixty days compared to two lower, while the full year estimate has seen four up and one down in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has dropped 3.3% in the past two months, while the full year estimate has decreased roughly 3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Spirit Airlines, Inc. Price and Consensus
Spirit Airlines, Inc. Price and Consensus | Spirit Airlines, Inc. Quote
Despite the somewhat mixed estimate revision trend, the stock has a long-term expected earnings growth of 7.9%. Furthermore, the stock sports a Zacks Rank #2 (Buy) indicating robust fundamentals and expectations of outperformance in the near term.
Bottom Line
Spirit Airlinesis an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the Top 25%) and a solid Zacks Rank instills investor confidence.
However, it is hard to get too excited about this company overall as over the past two years, the Zacks Transportation-Airline industry has underperformed the broader market, as you can see below:
Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this robust value metrics, and we believe that we have a strong value contender in Spirit Airlines.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>