SWA Stock Question. . .

[THEPRFCT10]

Sorry if this was previously addressed:

Can anyone explain why LUV's stock has hovered between $13 - $15 for so long. Is this a good thing or a bad thing. My ignorance thought good profitable company = high stock. Just wondering. . .thoughts?

 

[RedDogC130]

look at United's price....investors like risky companies and the price goes high.

 

[igneousy2]

You can't just compare stock price to say if a particular stocks price is "high" or "low". SWA is at $14 and United is at $47, but one share of SWA represents less of the company then Uniteds one share (United has a smaller float). A better way to see how investors "value" a company is by market capitilization (outstanding shares times stock price) and what you get is SWA with a market cap of 10 Billion and United with a market Cap of 5 Billion - so if some other party wanted to buy either company they could theoretically buy all of United for 1/2 the price of SWA.

As to why SWA's stock hovers at 13-15 is because stock price appreciation has more to do with the growth of profits then it does with the profits themselves. If the amount of profits remain the same then the price stays the same (all other things being equal). The thing that SWA does that brings there stock price down is they issue stock which has a diluting effect which tends to bring the price down as the more shares that are outstanding the less each share is worth. So I believe that because SWA profits are increasing slowly to being flat (upward pressure) - outstanding shares are increasing slowly (downward pressure) = stock price that is basically stagnant, trading in a 13-15 range.

As far as your question if this is good or bad - The actual stock price does not matter - the more important thing is the movement of the stock price and the cause of the movement.

Later

 

[Andy Neill]

Let me give my take from an investor's viewpoint. The good things about Southwest's stock is that it has a relatively low P/E and that P/E is as low as it has ever been. Cash flow is expected to grow and the EPS is in the top 10% in the industry.

The bad things include that there are 7 sellers for every 3 buys of the stock, the projected EPS estimate has gone down recently and the EPS growth over the next five years is projected to be negative.

Looking at the financial aspects, I see that the Return on Equity at 9% is about half of what I look for in a good company. The sales growth rate is less than the 25% I would like and the EPS growth rate is barely positive. Year over year earnings have been positive except for 2004/2003.

Bottom line is that from my perspective, I would rather invest in AMR, CAL, and SKYW over UAUA, MESA, LCC, and LUV.

 

[B727Driver]

Work at an airline, yes. Invest in one, no. There are far better investments out there.

 

[igneousy2]

Work at an airline, yes. Invest in one, no. There are far better investments out there.

The best advice on fi ever...except for the first part.