There’s been a lot of talk in the media lately about a major shift in market leadership from growth stocks to value stocks, but value investors always have to be careful of falling into a value trap. Today I’m going to take a look at Southwest Airlines Co (LUV) stock to determine if it is a value…or a value trap.

Making that distinction can make you an awful lot of money. Failing to make it can be awfully expensive.

Don’t Let LUV Be a Trap

There are a handful of standard metrics that value investors look for in a stock. The simplest, most popular metric is the P/E ratio. Historically, the S&P 500’s P/E ratio sits around 15, but it varies throughout market cycles, typically ranging from the low teens to the low 20s.

But you should be careful not to go looking for LUV (or any other stock, for that matter) in all the wrong places.

The biggest mistake an inexperienced value investor can make is blindly screening for great value stocks with low P/Es. A screen like that might lead you to a stock like GoPro (GPRO). As recently as December, GPRO had a sub-15 P/E. However, a quick look at GoPro’s net revenue, income, and EPS shows why the stock ended up being huge value trap.

All three of these metrics peaked for GoPro and began trending in the wrong direction. Not surprisingly, the low P/E didn’t last for long and neither did the potential value of the stock.

Is There Value in Southwest Airlines Stock?

First, LUV stock has a P/E of 12 and forward P/E of 8.4, which are both well short of the S&P 500 P/E of 20.6. When earnings growth is factored in, Southwest stock’s PEG ratio is a minuscule 0.4 compared to the S&P 500 average of 1.7.

A quick check reveals that, not only are revenue and net income trending in the right direction, LUV’s EPS has exploded in the past two years to new all-time highs. That is certainly not the type of growth you typically see in a value trap.

Finally, since not all sectors trade in the same valuation ranges, it’s always good to take a look at how a stock’s current and forward P/Es compare to their historical ranges. For Southwest Airlines stock, the current ratios are both at the very bottom of their five-year ranges.

Looking For Red Flags in LUV

Once it seems like there are no caveats to a potential value stock’s metrics, it’s a good idea to try to look for other red flags that could explain why the stock is trading at such a discount. One possible reason for a discounted valuation is dangerously high debt levels. Southwest’s debt-to-equity ratio currently sits at a modest 0.4, much lower than the ratios of peers Delta Airlines (DAL), United Continental (UAL) and American Airlines (AAL). Once again, Southwest’s ratio has also mostly been trending in the right direction in recent years as well.

In terms of major expenditures, LUV stock pays a modest 0.83% dividend, but aggressively bought back $1.66 billion of shares in 2015, reducing the company’s overall share count by about 6%. This kind of generous capital return spending indicates that management is very confident about the health of the company’s balance sheet.

The Bottom Line

I see two major reasons why LUV stock is such a value in today’s market, but neither of them seem like real threats. First, all of the airline stocks seem to be punished with low multiples because of their long histories of poor performance prior to the restructuring and consolidation that turned around the industry in the past decade. The market doesn’t seem to trust that airline earnings are for real.

The second reason ties in closely with the first: when the U.S. has fallen into past recessions, the airlines have been hit extremely hard. However, J.P. Morgan analyst Jamie Baker earlier this month argued that, not only will the airlines remain profitable throughout the next recession, they will maintain margins higher than industry peaks in previous market cycles.

Sure, airlines like Southwest have a lot to prove when it comes to maintaining performance during an economic downturn. But the company appears well-positioned for the future, and Southwest Airlines stock looks like quite a value at its current price.

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.