Southwest Airlines has made a name for itself as one of America’s leading air carriers. A recent dip in its stock price paired with robust fundamentals indicates it may be a solid stock purchase, as well.
Is Southwest a Good Company To Invest In?
The short answer is yes. Although it’s currently trading at just $31.63 a share, the market analyst consensus for the stock price is $47.07, or nearly 50% higher than its present valuation.
However, it’s important to remember that market analysts don’t hold a crystal ball. Projected figures are based on sophisticated mathematical models that ultimately reflect educated guesswork. It’s not possible to predict the future price of a stock with 100% accuracy.
The Bull Case
Southwest Airlines Co. (LUV) has been a dominant player in the airline industry for over five decades. Its lean business model has facilitated strong growth that shows no sign of stopping.
The airline’s main strengths include:
- Efficient business practices that emphasize cost-cutting and savings wherever possible
- A strong balance sheet
- A healthy profit margin
- Healthy year-over-year operating revenue growth
Based on its strong core business practices, Southwest represents a good example of a long-term hold. However, its recent dip has made it equally attractive to short-term traders.
Southwest has experienced a significant amount of volatility in recent months. That represents an even greater opportunity for those looking to buy low. Also, LUV currently has a consensus “buy” rating from analysts, as reported by Yahoo Finance, and a “moderate buy” rating from MarketBeat.
The Bear Case
Southwest might not be a good pick if you’re after dividend-yielding stock. Historically, its dividend yield has hovered just over 2%, putting it comfortably in the bottom half of dividend-producing stocks.
Southwest also let its customers down in a big way during the 2022 holiday season, with a huge number of canceled flights. If it doesn’t manage to recover its customers’ confidence, the future might not be so bright for Southwest.
In addition, some investors choose to stay away from investing in airline stock due to the lack of differentiation opportunities. Compared to other businesses, airlines have a relatively small amount of wiggle room when it comes to change and innovation.
What Sets Southwest Apart From the Competition?
Over the years, Southwest has built up a strong reputation for providing quality, low-cost services and an unwavering commitment to its workers. The company managed to weather financial firestorms like the 2008 financial crisis and the COVID-19 pandemic without resorting to mass layoffs.
The current consensus view from market analysts is that Southwest Airlines’ stock is undervalued. This represents a buying opportunity for short-term traders. Southwest’s robust business practices may also make it an attractive purchase for buy-and-hold investors.
Regardless of your trading strategy, it’s important to remember that it’s impossible to predict stock prices with any accuracy. Every stock purchase comes with a certain amount of risk.
- Is Southwest a buy or sell?
- As of early April 2023, Southwest Airlines is a buy, a consensus backed by its longstanding business fundamentals, its strong position in the air travel market and analysts' rating that it is undervalued.
- Who owns the most Southwest Airlines stock?
- Vanguard Group, Inc., an investment advisor, represents the largest stockholder in Southwest Airlines with 65,581,138 shares as of late 2022.
- How many times has Southwest Airlines' stock split?
- Southwest Airlines has experienced 14 stock splits over the course of its lifetime. The most recent occurred in January 2001.
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- Statista. 2023. "Domestic market share of leading U.S. airlines from January to December 2021."
- MarketBeat. "Southwest Airlines - LUV Stock Forecast, Price & News."
- AARP. 2022. "Boom? Doom? Be Wary of Wall Street Crystal Balls."
- Seeking Alpha. 2022. "If You Must Invest In The Airline Industry, Consider Southwest."
- PortfoliosLab. 2023. "Southwest Airlines Co. (LUV)."
- Yahoo Finance. "Southwest Airlines Co. (LUV)."