Down 97%, Is It Time to Buy Spirit Airlines Stock?

Spirit Airlines (SAVE -2.27%) took his investors on a whirlwind ride. Shares of the troubled discount airline have fallen 93% over the past five years. In the same extent, the S&P 500 it would have doubled your money.

As of the moment I write this, this airline stock is down 97% from its peak set in December 2014. Is it time to take a risk and buy Spirit stock?

Troubles of the Spirit are hard to ignore

For a stock to perform this poorly, there are some serious issues with the business. And that’s exactly the case here. Only this year did the troubles of the Spirit shine.

In January, that of the company proposed merger with JetBlue to create a stronger discount airline was blocked. Spirit’s stock has fallen since the merger and is down 83% this year alone. If regulators had allowed the deal to go through, then Spirit’s financials could have been in better shape thanks to the combination with JetBlue. Unfortunately, that didn’t happen.

The company’s financial red flags are too hard to ignore right now. First, the business is shrinking. Revenue in the first six months of 2024 of $2.5 billion was down 8.5% year over year. Management touts overcapacity in the industry putting pressure on fares, as well as price cuts for ancillary services.

Wall Street analysts believe Spirit sales will fall 7.2% this year. It looks like the situation is going to get worse in the short term.

It also leaves a lot to be desired in terms of profitability. Spirit has had problems with this in recent years. The operating loss tripled year-over-year to $360 million in the first half of 2024. Lower fuel costs were more than offset by higher wages, landing fees and aircraft leases.

Investors should understand that Spirit’s financial performance is not indicative of the overall industry. Best US Air Carriers, Delta, Southwest, Unitedand Americanall reported revenue growth and positive operating income in their most recent quarters. Spirit sticks out like a sore thumb next to these airlines.

Declining sales and continued losses, unsurprisingly, do not create a favorable recipe for a healthy recipe. balance sheet. Spirit is literally on the brink of fiscal insolvency, which means there is a possibility, in the not-too-distant future, that it will struggle to pay its creditors.

As of June 30, the business had about $7 billion in debt and operational leasing liabilities on the books. This is significantly higher than the cash and cash equivalents balance of $725 million. This is not a good sign. Spirit will likely need to raise more capital to finance its operations.

Is Spirit stock a value trap?

To be clear, the fact that Spirit has fallen so far out of favor with investors means the stock’s valuation couldn’t be more depressed. It is trading at a price-to-sales ratio of below 0.06, which is about the lowest it has ever been.

That valuation is very cheap. And it could entice deep value investors to take a chance on the stock. The optimistic outlook is that earnings may begin to stabilize and eventually return to growth. And that growing top line can potentially contribute to increased business profitability, no matter how small.

But based on recent trends, I’m not at all confident. Spirit was really hoping that its planned merger with JetBlue would have gone through to help the business survive. Now, he’s forced to fly solo, which highlights the rough shape the company is in. Best to avoid this stock like the plague.