SkyWest Inc (SKYW, Financial) witnessed an impressive 11.62% gain in its stock price on October 27, 2023, following a 6.43% gain over the last three months. Despite the recent surge, the stock reported a Loss Per Share of $0.07. This raises a pertinent question: is the stock fairly valued? In this article, we delve into SkyWest's valuation analysis to answer this question. Let's dive in.
Company Introduction
SkyWest Inc (SKYW, Financial), a prominent commercial air service provider in the United States, Canada, Mexico, and the Caribbean, has a market cap of $1.80 billion. The company not only offers regional flights with its smaller, lower-cost aircraft but also leases aircraft to generate revenue. SkyWest partners with major global carriers to operate aircraft for a fee, utilizing their brand and ground support for marketing and passenger transportation. The company operates in two segments: SkyWest Airlines and SkyWest Leasing.
Comparing the stock price of $42.27 with the GF Value of $38.71, it appears that SkyWest (SKYW, Financial) is fairly valued. Let's analyze this further.
Understanding SkyWest's GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
For SkyWest (SKYW, Financial), the GF Value suggests that the stock is fairly valued. The stock's future return is likely to align with its business growth rate. If the stock price is significantly above the GF Value Line, it indicates overvaluation and potentially poor future returns. Conversely, if it is significantly below the GF Value Line, it suggests undervaluation and potentially higher future returns.
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Financial Strength
Investing in companies with poor financial strength can result in a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before purchasing its stock.
Looking at SkyWest's cash-to-debt ratio of 0.26, which is worse than 65.25% of 944 companies in the Transportation industry, the company's financial strength appears to be poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. SkyWest has been profitable 7 out of the past 10 years. However, its operating margin of 2.34% ranks worse than 75.47% of 954 companies in the Transportation industry, indicating fair profitability.
Growth is a critical factor in a company's valuation. SkyWest's 3-year average annual revenue growth of 0.8% ranks worse than 61.07% of 917 companies in the Transportation industry. The 3-year average EBITDA growth rate is -12.9%, which ranks worse than 83.09% of 822 companies in the Transportation industry, indicating poor growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) is another way to determine profitability. SkyWest's ROIC of 0.41 is lower than its WACC of 6.36, implying that the company is not creating value for shareholders.
Conclusion
In conclusion, SkyWest (SKYW, Financial) appears to be fairly valued. The company's financial condition is poor, its profitability is fair, and its growth ranks worse than 83.09% of 822 companies in the Transportation industry. To learn more about SkyWest stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
