Southwest Airlines (NYSE:LUV) has been facing a tough time in the market recently, with its share price down 14% in the last three months. However, it seems that investors may have overlooked some positive aspects of the company’s fundamentals, particularly its return on equity (ROE).
ROE is a key metric that measures how effectively a company is reinvesting its capital. In the case of Southwest Airlines, the ROE is calculated at 3.9%, which is lower than the industry average of 9.5%. This low ROE may be contributing to the company’s five-year net income decline of 15%.
Despite the challenges, analysts are optimistic about Southwest Airlines’ future earnings growth, with forecasts suggesting a significant improvement in the company’s performance. This could be driven by the company’s high rate of profit retention and the expected rise in future ROE to 12%.
Overall, while Southwest Airlines may be facing some headwinds, there is potential for growth in the future. Investors may want to keep an eye on the company’s performance and analyst forecasts to gauge the stock’s potential.
