The transportation airline industry group posted the largest
gains in the past eight weeks with Alaska Air Group (
) up 29%, being one of the top advances next to Sprint Airlines (
), up 31%.
ALK's last results show a 5% increase in traffic on a 4.8%
increase in capacity year-over-year in February 2012.
On a 5-year horizon, revenues have been rising steadily except
for a bump in 2009 to a historic high of $4 .6 billion in 2012 (+
7.8%) and EPS of $4.4 (+ 31.7%) versus the previous year.
A comparison of the latest Q4 2012 sales reveals a 8.4 % increase
and a surprising 31% drop of EPS versus the. previous year.
For almost 27 years the median value of the stock had been only
From June 2009 until January 2012,it rallied from $9.1 to a new
peak at $38.1, reaching (+284%) before plateauing around $35 for
From August 2012 at $33.5, it resumed its upward surge to an
all-time historical high of $57.5 (and counting?!) as of March
08.2013, i.e another 72% jump in about seven months.
Altogether the stock has rallied by over 530% as of now and might
move even higher still given its strong upside momentum and new
daily record highs.
The large majority of analysts have a strong buy and buy ratings
and a consensus target price of $60.
The overall sentiment on the stock is decidedly bullish and the
surge can be put down to momentum traders intoxicated by the
increasing feel-good factor created by the DOW and S&P
hitting ever new record highs on a daily basis.
The upward move of the airline industry in general and ALK in
particular - the rationale goes - is the result of a
strengthening economy and thus increasingly good outlook for ALK
and its portfolio of destinations ...or so they think.
Against the backdrop of this overall great and promising news and
expectation, one should take a note of net (sells minus buys )
insider sales of about 400 000 shares during the past 12 months.
In addition to that the short interest has risen almost fourfold
during the past 11 months.
For a reality check and perspective, investors should ask
themselves the following questions:
1. Where will future additional business growth (after Hawaii)
actually come from when considering organic growth only?
2. Airlines are a cyclical business and as such move in tandem
with the economic cycles without exception, do they not?
3. During the almost three decades preceding the described rally,
business boom times almost never catapulted the stock too high
above its long-term median price of $10. Does the
mere hope for and projection
of an improved economy justify the extreme surge and sky-high
4. Why is it that insiders are busy selling their own stock when
so much more good news is supposedly in the cards?
While the financials of the company have proven sound, the
continued rise of its stock price to all-time historical high
levels is out of sync cannot be justified.
The potential for organic business growth for airlines in general
and for ALK in particular is limited and as such not much
additional and significant sales upside is warranted at this
The rationale for the rally, being the improved economy and
outlook, simply does not hold up to scrutiny and the lessons of
Case in point: Much revered Southwest Airlines (
), formerly run by legendary founder Herb Kelleher (once named
best CEO in America ), continues to thrive boasting great
However in spite of all this and the " improving outlook" it has
never managed to regain its former all-time high of $22.3 and
currently trades well below around only $12.
A continuation of this exponential upward thrust - while possible
in the very short run only - is simply unsustainable in the long
run and can and shall not last.
What the mad crowd of momentum investors getting in at the very
top constantly seem to forget is the fact that the
(high & increasing)
( low & diminishing)
relationship is strongly inverse
at these levels. They are willing to bet on
only marginal and limited upside potential
while completely ignoring the
significant above average downside risk inherent in such
Remember the old stock market adage:
"Wall Street forgets everything and learns nothing!"
The air is definitely getting thinner for ALK. It is in my
view in the very final stage of an unwarranted upsurge before
the overdue empiric inflection point!
The closer Ikarus is getting to the sun, the sooner the wax
holding together his wings will melt and cause an epic fall
down to earth and much more reasonable levels that characterize
all cyclical stocks.
I am short ALK.
About GuruFocus: GuruFocus.com tracks the stocks picks and
portfolio holdings of the world's best investors. This value
investing site offers stock screeners and valuation tools. And
publishes daily articles tracking the latest moves of the world's
best investors. GuruFocus also provides promising stock ideas in
3 monthly newsletters sent to