Forget the Mega-Merger: Invest in Alaska Air Group, Inc. (ALK) Today

Page 1 of 2

If the majority of Wall Street and the investing world is playing in one corner of the room, it’s best to put yourself in time out. For the airline industry, the big news this week will be the nearly completed merger of US Airways Group, Inc. (NYSE:LCC) and American Airlines. The two will form to be the biggest bird in the sky, delighting some investors while frightening others. But while the analysts and pundits debate the merits of the new uber-airline, the wise investor ought to look at this much smaller airline that is growing quickly and profitably, all while offering investors a frequent-flyer discount on its shares.

Alaska Air Group, Inc. (NYSE:ALK)A profitable airline?
Airlines have been plagued investments since Benjamin Graham told us they were decades ago. I’m not actually saying he is to blame, as you could throw a rock down Main Street and hit six better-managed businesses than your average airline. But still, theories tend to be inelastic in the investment world — sometimes to its own detriment.

The truth is you can make money off airlines — just don’t choose bad ones. As with many an industry, some of the best airline stocks are the ones far away from the headlines, with only one or two analysts, and that seem at first glance to be uninteresting businesses. This airline is not what most would expect to be a quickly growing business. But in reality, it is expanding brilliantly, with good discipline and industry-leading margins while at the same time increasing its passenger revenue per available seat mile, or PRASM, a crucial number when analyzing this kind of company. These strong qualities, possibly the best among its peers, are in direct contradiction with the company’s stock price — trading at lower multiples than the others while offering the most upside potential.

It’s no secret among industry insiders and watchful investors that Alaska Air Group, Inc. (NYSE:ALK) is about as good a value as you can get in the growth airline sector.

Fly Alaskan
Unfortunately, we’re about a year too late for the deep value bargain that was Alaska Air. The stock gained more than 30% last year based on some of the fundamentals I’ve already mentioned. The financials have been looking great for some time. Since 2009, the company has grown its cash flow from operations by 68% — pretty remarkable for any niche airline.

Alaska Air, while growing its routes, has been able to increase its PRASM. In the last reported quarter, PRASM was up $0.10 over the year-ago quarter. For all of 2012, that number grew by $0.31 — a very attractive figure. Compare that with a peer – Allegiant Travel Company (NASDAQ:ALGT) . Allegiant operates in a slightly different business (it’s a travel booker as opposed to pure airline), but it is also a growing smaller airline. In Allegiant’s recent earnings release, its PRASM shrank by more than 10% from the year-ago quarter. On a yearly basis, the number was down by 5%.

When airlines are focused on growth, they often put the PRASM on the back burner temporarily for the sake of overall numbers growth. Alaska Air Group has successfully grown its routes and planes while keeping consistent or growing profitability. Mark one notch next to company management for this one.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!