Since September 2024, Delta Air Lines has been in a holding pattern, floating around $46.72.

Is there a buying opportunity in Delta Air Lines, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

We're sitting this one out for now. Here are three reasons why we avoid DAL and a stock we'd rather own.

Why Do We Think Delta Air Lines Will Underperform?

One of the ‘Big Four’ airlines in the US, Delta Air Lines (NYSE:DAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

1. Weak Growth in Revenue Passenger Miles Points to Soft Demand

Revenue growth can be broken down into changes in price and volume (for companies like Delta Air Lines, our preferred volume metric is revenue passenger miles). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Delta Air Lines’s revenue passenger miles came in at 60.39 billion in the latest quarter, and over the last two years, averaged 12.8% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Delta Air Lines, its EPS declined by 6.1% annually over the last five years while its revenue grew by 5.6%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Delta Air Lines historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.1%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

Final Judgment

Delta Air Lines falls short of our quality standards. That said, the stock currently trades at 6.3× forward price-to-earnings (or $46.72 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Like More Than Delta Air Lines

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