Long-established in the Transportation industry, Spirit Airlines Inc (NYSE:SAVE) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 2.78%, juxtaposed with a three-month change of -4.73%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Spirit Airlines Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 4/10
Profitability rank: 6/10
Growth rank: 2/10
GF Value rank: 4/10
Momentum rank: 2/10
Based on the above method, GuruFocus assigned Spirit Airlines Inc the GF Score of 59 out of 100, which signals poor future outperformance potential.
Company Snapshot: Spirit Airlines Inc
Spirit Airlines Inc serves the United States, Latin America, and Caribbean as an airline operator. It primarily offers customers unbundled base fares to strip out any unneeded travel amenities. If needed, a customer can elect for additional options at an extra charge. Flight crews are entirely interchangeable across all aircraft, and maintenance and other support services are simplified due to not having an overly complex fleet. The company has one operating segment, air transportation, owing to its system wide route structure. It may decide to expand its network if a market is underserved or overpriced. The majority of revenue is derived from the United States.
Financial Strength Analysis
Spirit Airlines Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0.15 positions it worse than 98.73% of 789 companies in the Transportation industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.65, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.19 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 4.31, which is worse than 95.17% of 848 companies in the Transportation industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations.
A lack of significant growth is another area where Spirit Airlines Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -5.9 per year over the past three years, which underperforms worse than 75.08% of 915 companies in the Transportation industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Spirit Airlines Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Spirit Airlines Inc has a commendable history in the transportation industry, its current financial indicators suggest a challenging road ahead. Investors should consider these factors when making investment decisions. Will Spirit Airlines Inc overcome these hurdles and return to its former glory? Only time will tell.
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This article first appeared on GuruFocus.