Markets

Alaska Air (ALK) and Spirit (SAVE): Two Very Different Charts, One Conclusion

A generic image of two people across from each other
Credit: Shutterstock photo

If you have been awake at all during the last few months, you will be aware that the falling price of oil is a big story; so big, in fact, as to have imposed itself on the market as a whole. Where oil goes these days, stocks follow. In some ways that makes sense: the oil boom in certain parts of the U.S. was a major contributor to economic growth and as that industry contracts there will undoubtedly be some pain. In others, though, the reaction is starting to look overdone, particularly in industries that actually benefit from lower oil prices.

Airlines would be an example. After a couple of years when airline stocks did well across the board the stocks as a group have stalled somewhat in the last couple of months. This has been in part a general industry wide thing, but it has been marked by a distinct lack of correlation, particularly among regional carriers. Alaska Air Group (ALK), for example, is up around 46 percent Year to Date (YTD), while Spirit Air (SAVE) is down around 43 percent.

Regular readers will be able to take a guess as to which of those stocks is of most interest to me, but in reality both appeal, although for different reasons.

Alaska Air is a remarkable story with dramatic growth, and that story has resulted in huge appreciation in the stock. Expansion beyond a certain point is difficult in the airline industry; there is only so much business to be had and so many routes to fly, and eventually that has to catch up with Alaska. That would normally be enough to put me off of the stock, but they have been growing at such a pace that under capacity was their biggest problem, and it is that, rather than demand that has held back the stock from even more spectacular gains.

The fact that passenger miles increased in November but their load factor actually fell indicates that that is no longer the case. As filling seats rather than providing them becomes Alaska’s focus and their talent for execution is turned on that problem there is no reason to think that they will not succeed. Given that, a forward P/E of under 12 and, even more tellingly, a PEG (P/E to Growth) ratio of 0.69 suggests that even at these lofty looking levels the stock is actually cheap.

At the other end of the spectrum we have Spirit. That stock has been declining this year as stories of bad service circulated and profits, while still growing, failed to keep pace with analysts’ expectations.

What often gets lost in these situations, however, is that Spirit is still making profits. There are a lot of companies that would kill for the 28.53% return on equity delivered by SAVE’s management, for example.

The stock found a bottom last month when Whitney Tilson of Kase Capital Management declared a large stake and referred to the stock as his “...top long term bet...,” but even after the ensuing bounce SAVE still looks cheap. A Forward P/E ratio of 11 and a PEG of 0.81 indicate that value is still there, and the look of the chart above suggests that, when sentiment really turns, there could be a rapid appreciation.

Alaska Air and Spirit are very different propositions right now, but if, as looks likely, oil prices stay low for some time and the U.S. economy continues to grind through a recovery despite that, both have the potential for significant gains in their stock. The charts will look very different when that happens, but the dollars in your account will all look the same.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SAVE ALK

Other Topics

Investing Stocks

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

Read Martin's Bio