Based on most conventional metrics, United Airlines Holdings Inc. (NASDAQ:UAL) is a cheap stock. Shares trade at a forward price-earnings ratio of 5 and a forward enterprise value/Ebitda ratio of 3.80. Comparably, the S&P 500 trades at roughly 22 times forward earnings.
The stock has a GF Value of roughly $67 per share, which represents a 37% premium to the share price at the time of writing. However, it may be cheap for a reason and further analysis is required.
A highly competitive, capital-intensive and cyclical business with low returns on capital
The airline business is highly competitive. United competes with other U.S. airlines, including American Airlines (NASDAQ:AAL), Southwest Airlines (NYSE:LUV), Delta Airlines (NYSE:DAL), Alaska Air (NYSE:ALK), JetBlue (NASDAQ:JBLU) and Spirit Airlines (NYSE:SAVE). The company also competes with foreign carries on international routes. The result is that the airline business tends to be a very low-margin…
