We recently published a list of the 10 Best Airline Stocks to Buy For 2024. Since SkyWest Inc (NASDAQ:SKYW) ranks 8th on the list, it deserves a deeper look.
Despite rising inflation, consumers worldwide continue to spend on travel and experiences, defying all expectations and forecasts. Latest data from the International Air Transport Association (IATA) estimates that the airline industry is expected to generate $30.5 billion in net income in 2024, driven by higher ticket prices and consumers’ desire to travel. Last year, the industry’s net income came in at $27.4 billion. According to data from the World Travel & Tourism Council (WTTC) the economic impact of the travel industry this year is expected to soar to $11.1 trillion, beating its previous level of $10 trillion recorded in 2019. The Council expects the tourism industry to become a $16 trillion industry over the next decade, accounting for about 11.4% of the global GDP.
However, not all is rosy in the airline industry. The competition in the industry is increasing, while geopolitical headwinds and rising employee costs continue to batter small and large airline companies. IATA was quick to highlight that despite the industry growth, airlines’ profit per passenger is just $6.14. Travel demand in China also remains subdued amid real estate and economic crisis in the country. However, analysts believe sooner or later the country would rebound and the best airline and travel companies would benefit from the influx of Chinese tourists.
A KPMG report on the airline industry highlighted the resilience of the airline industry and its fast recovery to pre-pandemics levels:
“The latest air travel data from IATA shows that passenger travel for November 2023 globally has reached 99.1% of November 2019 levels. November 2023 international RPKs reached 94.5% of November 2019 levels, while domestic traffic was 6.7% above the November 2019 level. Although international global travel remains 5.5% below pre-pandemic levels, IATA director general Willie Walsh said that the gap is “rapidly closing”, adding that current “economic headwinds are not deterring people from taking to the skies”. IATA also noted that long-term airline profitability shows that while the industry is exposed to external shocks, it typically returns to profitability “relatively quickly”.”
In this backdrop, we decided to take a look at some of the best airline stocks to buy in 2024 according to hedge funds. For that we first listed down all holdings of an airline ETF, which provides investors exposure to the airline industry and tracks some of the biggest and most important airlines and aviation companies of the US and worldwide. From these stocks we chose 10 companies with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
SkyWest Inc (NASDAQ:SKYW)
Number of Hedge Fund Investors: 24
Utah-based SkyWest Inc (NASDAQ:SKYW) is a regional airliner that has seen its share price gain 52% so far this year. In April SkyWest Inc (NASDAQ:SKYW) posted solid Q1 results, which showed its GAAP EPS in the period came in at $1.45 beating estimates by $0.26. Revenue in the quarter jumped 16.2% year over year to $804 million, surpassing estimates by $3.93 million. SkyWest Inc (NASDAQ:SKYW) bulls believe the company has a wider moat in the industry, as it targets on regional flights to smaller airports. SkyWest Inc (NASDAQ:SKYW) also has a large fleet for a small airline, which also gives it a pricing advantage over others. The company has long-term, fixed-fee contracts with major airlines including Alaska (ALK), American (AAL), Delta (DAL), and United (UAL). SkyWest Inc (NASDAQ:SKYW) expenses are also low because it does not spend a fortune on marketing and booking; most of its customers come from its partnerships with peers. Last year, SkyWest’s expense-to-sales ratio was 9.1%, while this metric was 18.7% for United Airlines, 15.2% for Southwest and about 18% for Spirit.
Despite its strong performance, SkyWest Inc (NASDAQ:SKYW) forward P/E ratio is 11.48, much lower than the industry median of 18. Its forward EV/EBITDA, a common metric used to value airlines, is just 6.2, much lower than the industry median of 12.88. The company’s revenue in 2025 is expected to rise by 9.60% while earnings growth is expected to be at around 17.10%. This makes SkyWest an undervalued play and one of the best airline stocks to buy for 2024 and beyond.
Overall, SkyWest Inc (NASDAQ:SKYW) ranks 8th on Insider Monkey’s list of 10 Best Airline Stocks to Buy For 2024. You can visit 10 Best Airline Stocks to Buy For 2024 to see other stocks in the list. While we acknowledge the potential of SkyWest Inc (NASDAQ:SKYW), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SkyWest Inc (NASDAQ:SKYW) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
