Down 97%, Is It Time to Buy Spirit Airlines Stock?

Investors prefer the companies they own to ensure smooth execution of their portfolios. But Spirit Airlines (SAVE -24.55%) did anything but. Since October 2019, shares have fallen 94% at the same time the broader stock has risen S&P 500 has achieved a total return of 111%.

There is a lot investors need to know about these issues Airline stockwhich is currently 97% below its peak nearly a decade ago, before making an informed decision about your portfolio. Read on to learn more about Spirit Airlines.

Fasten your seatbelts

To say that 2024 was a difficult year for this company would be an exaggeration. JetBlue should be the savior of the spirit. A planned merger of these two companies would have resulted in a more powerful low-cost airline. But that Deal was blocked in January. And since then, Spirit shares have plunged a staggering 71%.

If the proposed merger had been approved, the new company could well have been on the path to improved financials, something Spirit desperately needs at the moment.

In fact, Spirit’s warning signs are hard to ignore. The sales trend is worrying as overcapacity in the aviation industry has led to a dampening of ticket prices. In addition, Spirit has reduced prices for non-ticketing services such as seat selection and baggage. These unfavorable variables contributed to an 8.5% year-over-year decline in sales for the first six months of this year.

There isn’t really much reason for investors to be optimistic here. According to Wall Street consensus analyst estimates, Spirit’s revenue is expected to fall 7.7% for all of 2024 before rising just 1.8% in 2025. This is a discouraging short-term outlook.

The decline in sales wouldn’t be so concerning if Spirit were generating positive profits. However, this has not been the case for a long time. In the first two quarters of this year, Spirit posted a total operating loss of $360 million. The company has not reported positive operating income for a full year since 2019. Spirit is battling headwinds from higher expenses for labor, landing fees and aircraft rentals. Reduced fuel costs weren’t enough to boost the bottom line.

What’s even more concerning is that Spirit’s disappointing financial performance is out of step with what’s happening across the aviation industry. The four major airlines Delta Air Lines, Southwest Airlines, United AirlinesAnd American Airlineshave recorded an increase in sales in recent quarters. And they all recorded a positive operating result during this period.

It also shouldn’t surprise anyone that Spirit’s balance sheet leaves a lot to be desired. The company has a whopping $7 billion in debt and operating lease liabilities. Only $725 million in cash and cash equivalents is available to offset this burden. Perhaps one of the main reasons for the stock’s decline is investors’ concerns that Spirit could be on the verge of falling bankruptcy.

Is Spirit too cheap to ignore?

Spirit shares are currently valued at dirt cheap prices. Investors can purchase the stock at a price Price-sales ratio (P/S) ratio of 0.05. In its entire history as a listed company, shares have never been valued so low. The company has undoubtedly fallen spectacularly out of favor with the investment community.

All other things being equal, a favorable valuation factor is more desirable than an expensive one. And Spirit’s low P/E ratio could attract deep value investors who have a greater appetite for risk. Even small improvements in Spirit’s financials, such as revenue stabilization or losses shrinking, could push the stock significantly higher.

However, the best thing to do is to listen to the words of one of the best investors of all time. “A turnaround rarely happens” Warren Buffett the saying is attributed. It’s hard to have confidence in Spirit’s future prospects. Investors should stay away from the stock.