Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Spirit Airlines, Inc. (SAVE Quick QuoteSAVE - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Spirit Airlines has a trailing twelve months PE ratio of 14.60, as you can see in the chart below:




This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.89. If we focus on the long-term PE trend, Spirit Airlines’ current PE level puts it a notch below its midpoint of 15.62 over the past five years. Moreover, the current level stands well below the high for the stock, suggesting that it could be a solid entry point.

Further, the stock’s PE also compares favorably with the Zacks classified Transportation sector’s trailing twelve months PE ratio, which stands at 16.09. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Spirit Airlines has a forward PE ratio (price relative to this year’s earnings) of just 12.79, so it is fair to say that a slightly more value-oriented path may be ahead for Spirit Airlines stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Spirit Airlines has a P/S ratio of about 1.55. This is much lower than the S&P 500 average, which comes in at 3.08 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.





If anything, SAVE is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Spirit Airlines currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Spirit Airlines a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Spirit Airlines is just 0.79, a level that is lower than the industry average of 1.19. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, SAVE is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Spirit Airlines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘A’. This gives SAVE a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Notably, the company’s recent earnings estimates have been quite encouraging. The current quarter and full year have seen seven and nine estimates go higher in the past sixty days, respectively. The company didn’t witness any downward revisions for both the periods.

This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate jumped 24.7% in the past two months, while the full year estimate has increased 8.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

However, this bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the definite bullish analyst sentiment indicates that the stock’s prospects in the near term look good.

Bottom Line

Spirit Airlines is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 21%, which indicates that broader factors are favorable for the company. Further, over the past one year, the Zacks classified Transportation – Airlines industry’s performance has outdone the broader market, as you can see below:





So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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