Spirit Airlines (NYSE:SAVE) stock may have more than doubled since the start of the vaccine rollout. But, don’t think it’s too late to buy shares in this low-cost airline. Why? Namely, it continues to have two key strengths. Those would be its strong balance sheet, along with its lean cost structure, which enabled it to mitigate the severity of its cash burn during the pandemic.
Last year, when Covid-19 headwinds were at their peak, I made the case why, with its aforementioned strengths, this airline would bounce back relatively fast compared to legacy carriers like American Airlines (NASDAQ:AAL).
Flash forward to now, and it’s clear this has started to play out. Sure, as seen from its recent quarterly results (more below), results for January and February reflect a still-challenging environment. To some, this may signal investors have gotten ahead of themselves bidding travel stocks back up.
But that line of thinking is short-sighted. Diving into the details, it’s clear things will continue to improve as 2021 plays out. So, what does that mean, for those who may be interested but haven’t yet entered a position?
In anticipation of the comeback, the stock has mostly bounced back. But, with room to run in both the near-term and long-term, this remains a buy at today’s prices ($36.46 per share).
SAVE Stock and Recent Results
On April 21, Spirit Airlines released its numbers for the quarter ending Mar 31, 2021. As I hinted at above, getting back to normal is still a work in progress. Revenue remains down year-over-year (with last year’s first quarter being when the outbreak began to impact U.S. travel demand). Adjusted EBITDA margins continue to run high (negative 43.3%).
But, per management’s commentary, there’s much pointing to improved results going forward. Beginning in March, Spirit saw a material pickup in demand trends. With its assumption that said trend will continue, the company’s guidance for next quarter says breakeven Adjusted EBITDA is attainable.
Again, the market has already anticipated a massive recovery ahead for this carrier. That’s why SAVE stock has bounced back tremendously from its initial pandemic-driven collapse last spring. If you recall, shares briefly fell to prices in the single-digits. Since then, it’s delivered jaw-dropping returns for those who bought near the bottom. Yet, shares still have considerable runway.
And, not only because the stock, at $36.46 per share, remains around 15-20% below its pre-outbreak price levels. The continued improvements in travel demand will help the stock make up the rest of its losses. But, its long-term edge against the legacy carriers, and to some extent, rival low-cost carriers, will be what helps to keep it moving upwards long after we close the books on Covid-19.
Don’t Forget About Its Long-Term Potential
The continued recovery will help SAVE stock continue to gain in the short-term. But, that’s not where the story ends. This airline play has long-term potential as well. And, it comes from its industry-leading low-cost structure.
This advantage has been key in making it the fifth-largest domestic airline by market share. Not only will it enable it to maintain its lead over the other low-cost carriers that trail it. It also opens the door for it to gain substantial market share in the coming years.
Right now, it holds just a 5.8% share of the overall U.S. air travel market. The three largest carriers, legacy airlines American and Delta Airlines (NYSE:DAL), along with low-cost leader Southwest Airlines (NYSE:LUV), each hold around a 15-20% share. With its advantageous cost structure, combined with its financial strength, it has plenty of potential to narrow this gap.
Granted, materially expanding its market share will take time. Right now, its main focus is to ride out the pandemic, and return to full-year profitability. But, once it gets through the waning storms, consider this a long-term catalyst that could help propel the stock down the road.
With More Runway Ahead, Shares Remain a Buy at Today’s Prices
It’s premature to say airlines have made a comeback. Even as more Americans have become vaccinated, air travel demand remains far below pre-pandemic levels. Yet, investors have not been wrong in anticipating stronger numbers starting in the third quarter of 2021.
As seen from Spirit’s bullish guidance, it’s clear things have started to pick up — in a big way. This points to a continued recovery in results. And, in turn, a path for shares to fully recover from their pandemic-related losses. But, that’s not the only story with this low-cost carrier.
Considering its strong liquidity and low-cost structure, this airline has the potential to greatly expand its market share in the coming years. SAVE stock remains a solid buying opportunity.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.