Spirit Airlines (NYSE: SAVE) British Airways has taken its investors on a rollercoaster ride. Shares of the troubled airline have fallen 93% in the past five years. Over the same period, Standard & Poor’s 500 It could have more than doubled your money.
As of the time of this writing, this Airline stocks Spirit shares are down 97% from their peak in December 2014. Is it time to take a risk and buy Spirit shares?
It is difficult to ignore spiritual problems.
When a stock is performing poorly, it means there are some serious problems with the business. And that’s exactly the case here. This year alone has highlighted the problems that Spirit is suffering from.
In January, the company announced Proposed merger with JetBlue The creation of a stronger airline was prevented. Spirit’s stock plunged after the merger collapsed, falling 83% this year alone. Had regulators allowed the deal to happen, Spirit’s financial position would have been better off because of the merger with JetBlue. Unfortunately, that didn’t happen.
The company’s financial red flags are hard to ignore right now. First, business is shrinking. Revenue for the first six months of 2024, at $2.5 billion, was down 8.5% year over year. Management points to excess capacity in the industry putting downward pressure on prices, as well as price cuts on ancillary services.
Wall Street analysts believe Spirit’s sales will fall 7.2% this year. And the situation looks set to get worse in the near term.
There’s a lot to be desired on the profitability front. Spirit has struggled with that in recent years. Its operating loss more than tripled year-over-year to $360 million in the first half of 2024. Lower fuel costs were more than offset by higher salaries, landing fees and aircraft leases.
Investors need to understand that Spirit’s financial performance does not reflect the performance of the industry as a whole. The largest U.S.-based airline, Delta, Southwest, unitedand AmericanAll of the airlines have reported positive revenue growth and operating income in their recent quarters. Spirit sticks out like a sore thumb next to these airlines.
Unsurprisingly, declining sales and continued losses create a recipe for healthy growth. Balance sheetSpirit is literally on the brink of financial insolvency, which means that in the not-too-distant future it could struggle to pay its creditors.
As of June 30, the company had about $7 billion in debt. Operating Lease Financial obligations recorded on the books. This is significantly higher than the cash and cash equivalents balance of $725 million. This is not a good sign. Spirit will likely need to raise more capital to fund its operations.
Is Spirit Stock a Value Trap?
To be clear, the fact that Spirit has fallen out of favor with investors means the stock’s valuation couldn’t be lower. It’s trading at a price-to-sales ratio of less than 0.06, an all-time low.
This valuation is very cheap, and may tempt value investors to take a risk on the stock. On the upside, revenues may start to stabilize and eventually return to growth. And the rising top line may help propel the business to profitability, however small.
But based on recent trends, I’m not at all confident. Spirit was really hoping that its planned merger with JetBlue would help the company survive. Now it’s forced to fly solo, which highlights the dire state the company is in. It’s best to avoid this stock like the plague.
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Neil Patel His clients have no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has Disclosure Policy.
Spirit Airlines shares are down 97%, is it time to buy? Originally posted by The Motley Fool
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