Should you buy or sell Southwest Airlines amid the rising wave of cancellations?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 11, 2021
  • Southwest Airlines shares on Monday edged lower amid reports cancellations extended for the third day.
  • The airline had cancelled an additional 349 flights whilst putting 184 as of Monday morning.
  • The company drew national attention over the weekend after cancelling more than 2,000 flights.

On Monday, Southwest Airlines Co. (NYSE:LUV) shares edged lower 2% after it extended its airline cancellations for the third day. The company had cancelled an additional 349 flights whilst putting 184 on hold in the morning.

Southwest Airlines drew national attention over the weekend after cancelling more than 2,000 flights. Its level of cancellation is significantly higher than what the other airlines are reporting. The company’s pilots union said the cancellations are not caused by a planned labour walkout.

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Southwest shares are up more than 10% since 14th September, significantly outperforming the S&P 500 index. In addition, the company has exceeded earnings estimates in ten of the last 12 quarters.

Is it time to sell Southwest shares?

From an investment perspective, Southwest shares trade at a compelling forward P/E ratio of 18.58, making the stock a compelling opportunity for value investors. 

However, analysts expect its bottom line to plummet by a whopping 229% this year before recovering by 278% next year. As a result, growth investors may opt to assess the performance for the next few quarters before betting on the company’s prospective growth. 

Therefore, based on the recent cancellations, it could be time to take some profits before shares decline further.

Source – TradingView

Can the 100-day MA provide support?

Technically, Southwestern shares seem to be trading within an ascending channel formation. As a result, the stock appears to have surged closer to the overbought conditions of the 14-day RSI.

Therefore, with shares far from reaching oversold conditions, investors could target extended declines at about $51.34, or lower at $49.34. On the other hand, if the 100-day MA triggers a rebound, the stock could find resistance at $54.65, or higher at $56.45.

It could be time to take some profits

In summary, although Southwest Airlines trades at an attractive forward P/E ratio, its recent rally has pushed the stock closer to the overbought conditions, leaving little room for more upward movement.

Moreover, given Monday’s reports of more cancellations, the stock could pull back with investors looking to take some profits.

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