Over the past few years, Spirit Airlines Inc. (SAVE, Financial) has been growing swiftly on the back of its robust business model. In 2016, it was the best-performing stock of the aviation industry and rewarded shareholders with huge returns. The stock was up approximately 45% in 2016, significantly higher than the ARCA Airline Index's 30% growth.
Unfortunately, the stock is off to a bad start heading into 2017. It is down nearly 8% year to date, presenting a good buying opportunity for investors.
Spirit Airlines has massive growth opportunities in the coming years, which should permit the stock to continue its run to new 52-week highs. The company recently reported strong fourth-quarter results, reporting EPS of 77 cents, exceeding estimates by three cents.
On the other hand, the low-cost carrier’s revenue came in at $578.35 million, in line with the consensus. Regardless, that figure signifies a surge of 11.3% year over year. For the full year, Spirit detailed an operating margin of almost 21% and net income of $291 million.
The airline's Department of Transportation on-time performance improved by over five percentage points in the prior quarter. Apart from this, it also successfully decreased the number of complaints by more than 60%, from 11 per 100 thousand customers to just four per 100 thousand customers.
Spirit plans to expand its services to 17 new routes this year, with a focus on less competitive routes. The company has already established several new routes to Florida from cities in the Midwest and Northeast.
Over the past five years, Spirit’s capacity has grown at a yearly rate between 15% to 30%. Furthermore, the carrier anticipates increasing its capacity by 15% to 20% each year for the next five years.This growth will help the airline maintain its high margin.
Summing up
Despite rising approximately 45% in the past year, Spirit Airlines has further upside potential. Its low cost structure is behind its strong performance and striking margins, which will surely help it move upward in the imminent years.
The stock currently trades at a price-earnings ratio of 13, in line with the industry’s average of 13.93. Since its prospects look healthy, Spirit Airlines is well positioned to deliver massive returns to shareholders in the near future.
Disclosure: No position in the stocks mentioned in this article.
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