WestJet Stock Analysis – Is it a Future Stock?

Last few couple of months has been highly damaging for WestJet Airlines. People lost faith in this particular stock because of the various mistakes the management made consecutively. Because of those reasons, people owning shares of this stock may feel intimidated to get it off their portfolio. And, many would already have sold it away.

But, before making any decision, it is important to have an unbiased view. This can only be achieved by analysing the reason for the price drop in share price, the current trends and the future prospects.

Reasons for Price Drop

Let’s start with the reasons. The reasons would help you understand if the low stock value is permanent or will fade away soon.

1. The Low-Cost Strategy

If you are staying in Canada, you must be aware of the ULCC (ultra-low-cost carrier) which has recently become the hot topic for discussion. Investors interested in Canadian Airline stocks look up to this philosophy for deciding their future investment.

With low cost strategy, the capacity is the first thing that is affected. In other words, various metrics such as revenue per seat, average running mile per aircraft etc will be highly affected to compensate with the low-cost strategy. This in turn would affect the overall performance of the airline. So, why would investors be interested in the stock that is not likely to perform in the future.

2. The Pilot’s Strike

Because of the internal differences, management faced a fear of strike that stayed for about four weeks. Operating in that treat not only caused them the financial losses but affected their stock price immensely. Their stock price went too low not to be seen after mid of 2016.

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On 12 Feb 2016, the stock price of WestJet Airlines was 14.99 CAD which is close to the price as of today which is 18 CAD.

WestJet Airlines Stock Analysis with P/E Ratio

Many investors depend their investing decision on this parameter: P/E ratio. What is P/E ratio? Here, P stands for the Price per share and E stands for the earning per share. Although, its not the only parameter that can bring you to the final take. But, comparing the P/E ratio of other competitors may provide you a stand. The P/E ratio of WJA is 7.983x as of this writing, lower than the P/E Ratio of 9.923x when the stock prices started getting down back in April.

P/E ratio tells us about the money investors are putting together for each dollar earning of the company. And, in this case, investors are paying more for each dollar earning than they are paying to its competitors.

While the stock seemed overpriced in April, the June data shows a completely different picture. But, how to decide which P/E ratio is better. A lower P/E ratio is a good indication. However, for some, it reflects the lack of trust of investors on the company’s prospects.

When talking about WestJet Airlines, you can easily rule out theory of lack of confidence. Being old and been performing since its inception, it would not be wise to suspect the lack of investor’s faith on this stock’s future endeavour.

So, overall, the stock prices are expected to rise with time as the P/E ratio is going down.

Deciding Factors – Buy or Sell

You must have done your due diligence before concluding. However, I would like to add few points. If you have forgotten to give these a thought, you have a fair chance to do it now.

The Past Records

If you have been investing from a long time, you must understand the importance of checking the past records of the company’s portfolio. The company has been performing well since its inception. With few ups and downs, it has managed to retain its position. Even after rise in competition, it has remained unharmed.

The company past trends are also vital to note. This is not the first time the company is hitting the lower side.

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There have been instances when the company had to face losses with impact on the share price, but it made it back to the track. In the mid of 2016, when the company met with similar stock trends, investors got scared and started selling their shares. However, it rose again.

So, it would be wise to take into consideration every detail before making the final decision.

The Future Prospects  

I checked the SWOT analysis for WestJet Airlines at www.mbaskool.com and the results did amaze me. Considering the strengths, there are quite a few good ones.

  • Although the strategy for serving all through the low-cost prices did turn against the company’s will, it still gives WestJet Airlines an upper hand over its competitors in long run.
  • The strike threat had adverse effects on the stock price of the company. However, the award for Canadian Airline of the Year resulted in enhancing the faith of employees over the company. And, if the employees are happy, the company is expected to leave back all the losses behind.
  • Because of its brand value which has been customer focused for offering safe and convenient journey exudence, the future seems to show an affirming trend.
  • Being non-unionized, the fear of labour disputes in off the list.   

The Conclusion

There have been various incidences when the predictions go wrong. Not all that is said holds the best chance to perform. Moreover, making decisions about investments are highly critical as it involves our money.

Figuring out the stocks that would give us good return is not easy. You will have losses as well as profits. However, you need to stick to the ground rules. While applying my theory and philosophy, I believe that this is the good time to buy the WestJet Airlines Stocks.

As the prices have gone down, one can make good profit when the company will get on its feet again. And, the predictions are highly in its favour. The prices have already started to make up for the losses company faced in past couple of months.