United Airlines Down More Than 10% – What Are The Chances It Drops Again?

by Trefis Team
-16.19%
Downside
36.06
Market
30.22
Trefis
UAL
United Airline Holdings
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With airlines stocks declining again, everyone is wondering – what will happen next? United Airlines (NASDAQ:UAL), which fell nearly -11.4% in the last 5 trading days, is the latest to join the club of airline stocks that have dropped more than 10% within a week. Will this trend continue over the next month, or should we expect a rebound? What about the next 3 months, 6 months, or a year? Turns out that there is a good chance of United Airlines dropping more in the next 1 month, but a recovery is likely over a 3 month period.

Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period, and suggests nearly a 42% probability of United Airlines dropping another 5% over the next 21 trading days. However, over the next 3 months, the chances of a 10% rebound are at a significant 47%. Our detailed dashboard highlights the chances of United Airlines’ stock rising after a fall and should help you understand near-term return probabilities for different levels of movements.

But what do the underlying fundamentals suggest? While the near term downside risk remains meaningful, the current price is an attractive entry point from a long-term perspective.

Our dashboard Big Movers: United Airlines Holdings Moved -11.4% – What Next? lays this out.

At the beginning of this year, United Airlines Holdings’ trailing 12 month P/S ratio was 0.53. This figure decreased -35% to 0.34, before ending at 0.30. Compared to this, the figure for its peers Delta Air Lines, Southwest Airlines, and American Airlines stands at 0.57, 1.35, and 0.19 respectively. With the exception of American Airlines, others are trading at a higher multiple. There may be some upside possible once the existing concerns ease off.

United Airlines Holdings’ revenue has increased 14.5% from $37,784 Mil in 2017 to $43,259 Mil in 2019. For the last 12 months, this figure stood at $31,722 Mil, implying a decrease of -26.7% over 2019 numbers. In addition, United the company’s net margins increased 22.6% from 5.7% in 2017 to 7% in 2019, before falling to -5.25% for the last 12 months as a result of the Covid-19 induced travel halt. Covid-19 apart, the market has rewarded this consistent improvement in the underlying financials. United Airlines Holdings’ stock price increased 30% between 2017 and 2019, showing strong correlation with top line and margin improvement. Given the current price levels, there may be good returns in store for long-term investors as demand rebounds.

Taking all perspectives together, we believe that risk of downside remains high in the near term but there is a good chance of recovery over the next 3 to 6 months. But, what if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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