Airlines Look Too Cheap to Ignore

Airline stocks are at a steep discount for a reason. Trading at half price compared to a few weeks ago, flight cancellations and travel bans will take a toll on the airline business in the near-term. So, after the IATA (International Air Transport Association) said that airlines will lose up to $113 billion in revenue, it is no surprise that airline stocks are down.

American Airlines (NASDAQ:AAL) now trades at a forward P/E of ~2.7 times while Southwest Airlines (NYSE:LUV) trades at 8.3 times. These are multiples that do not price in the near-term drop in the flight cancellations.


Selling momentum may pick up steam to send these stocks at multi-year lows. But the government may step in to give loans or tax credits to help the industry. It is in every nation’s best interest that the airlines survive for the long-term.


For now, reducing flights and avoiding the hardest-hit areas like South Korea, Japan, and China is a requirement. Until the virus spread is contained, other nations cannot risk suffering from a virus spread.


In the next few days, buying airline stocks is a gamble. The revenue prospects for the next few weeks is highly uncertain. Continue watching the developments of virus containment, especially in the U.S. Only when cases are dropping will LUV and AAL stock reward investors.