Suffice it to say, United Airlines (NASDAQ:UAL) stock hasn’t been a high flyer this year. Does this mean investors should prepare for a hard landing in 2023’s fourth quarter? It’s a tough call, but there are reasons for value seekers to put United Airlines on their watch lists.
United Airlines can’t seem to catch a break lately, but we could say the same thing about many other U.S. carriers. When all is said and done, you’ll definitely want to consider your tolerance if you’re considering a share position in United Airlines.
Acknowledging the Issues Facing United Airlines
First and foremost, United Airlines will have to deal with high fuel costs. Oil above $90 per barrel will put pressure on every U.S. airline carrier’s bottom line. Hence, you might not want to hold UAL stock if you believe that the petroleum price will go much higher than it has already gone.
Next, United Airlines and other carriers are facing a shortage of qualified, available pilots. It’s commendable that United Airlines is getting creative in finding solutions, though. Per Reuters, United Airlines said it plans to “give conditional job offers to active-duty U.S. military pilots to join the airline as a first officer once they complete service.”
In addition, United Airlines hammered out a four-year contract with the Air Line Pilots Association. Consequently, United Airlines might not have to deal with union-led protests and walkouts for a while.
Problems Are Probably Priced Into UAL Stock
Thus, at least we can claim that United Airlines is trying to address its pilot shortage issue. Still, we can’t ignore United Airlines’ problems – but then, it’s possible that the market has already priced those problems into the shares.
You may have noticed that UAL stock has tumbled from $57 in July to $40 and change recently. It’s normal for stocks to experience some turbulence, but this downturn may be overdone.
Just maybe, the market has been so efficient in pricing in United Airlines’ potential problems that it created a good value. Consider that United Airlines’ GAAP-measured, trailing 12-month price-to-earnings ratio of 5.19x is much lower the sector median P/E ratio of 18.86x.
We’re certainly not recommending that investors should jump at every stock with a low multiple. Yet, some of United Airlines’ problems could be surmountable and UAL stock may find a bottom soon.
UAL Stock: Reserve Your Seat With Caution
United Airlines is a textbook example of a company that has identifiable issues and is out of favor among investors. If United Airlines can overcome those issues, a share-price recovery is certainly possible.
It’s possible, but not guaranteed. Value seekers must be prepared to accept some risk before investing in United Airlines. In particular, the oil price is a factor that airline carriers can’t control. Therefore, UAL stock gets a “B” grade and may be worth considering, but only with due caution.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
