Is Southwest Airlines (LUV) Still Attractive After A 30% Rebound In The Share Price

Simply Wall St.01-21

If you are wondering whether Southwest Airlines at around US$42.38 is still reasonably priced after its rebound, this article walks through what the current share price might be implying about value. ...

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The stock is up 30.2% over the last year, with more modest moves of a 1.9% decline over 7 days and gains of 2.7% over 30 days and 2.6% year to date, which can change how investors view both upside and risk. Alongside these moves, investors have been reacting to ongoing industry headlines around capacity, costs and operational reliability. These themes continue to shape sentiment toward major US carriers like Southwest Airlines. Broader travel demand trends and changes in competitive positioning across domestic routes have also kept the stock in focus for both short term traders and longer term holders. Right now, Southwest Airlines has a valuation score of 2 out of 6. We will look at what different valuation methods say about that score and then finish by walking through a more complete way to think about what the shares might be worth.  Southwest Airlines scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown. AdvertisementApproach 1: Southwest Airlines Discounted Cash Flow (DCF) Analysis A DCF model takes estimates of a company’s future cash flows, then discounts those back to today to arrive at an implied value per share. It is essentially asking what all of Southwest Airlines’ future cash flows are worth in today’s dollars. For Southwest Airlines, the latest twelve month free cash flow is a loss of about $997.5 million. Analysts have supplied explicit free cash flow estimates out to 2029, and Simply Wall St extends these with its own assumptions in a 2 Stage Free Cash Flow to Equity model, projecting free cash flow out to 2035. For example, projected free cash flow for 2029 is $2,030 million and for 2035 is $6,890.5 million, all in $ and then discounted back to today. Aggregating these discounted cash flows gives an estimated intrinsic value of about $148.74 per share for Southwest Airlines, compared with the current share price of around $42.38. On this model, the stock screens as about 71.5% undervalued. Result: UNDERVALUED Our Discounted Cash Flow (DCF) analysis suggests Southwest Airlines is undervalued by 71.5%. Track this in your watchlist or portfolio, or discover 872 more undervalued stocks based on cash flows. LUV Discounted Cash Flow as at Jan 2026 Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Southwest Airlines. Approach 2: Southwest Airlines Price vs Earnings For profitable companies, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings, so it is a common way to compare valuation across similar businesses. A higher “normal” or “fair” P/E usually reflects expectations of stronger earnings growth or lower perceived risk, while a lower P/E often points to more muted growth expectations or higher risk. With Southwest Airlines trading on a P/E of about 57.83x, the multiple is above the Airlines industry average of 9.58x and the peer average of 10.95x. Simply Wall St’s Fair Ratio for Southwest Airlines is 29.63x. This Fair Ratio is a proprietary estimate of what P/E might make sense after considering factors such as the company’s earnings growth profile, its industry, profit margins, market cap and specific risks. Because it blends these elements, it can be more tailored than a simple comparison to peers or the broad industry, which may have very different growth, profitability or risk characteristics. Comparing the current P/E of 57.83x with the Fair Ratio of 29.63x suggests the shares are trading above that Fair Ratio estimate. Result: OVERVALUED NYSE:LUV P/E Ratio as at Jan 2026 P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1446 companies where insiders are betting big on explosive growth. Upgrade Your Decision Making: Choose your Southwest Airlines Narrative Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about Southwest Airlines linked directly to numbers like fair value, future revenue, earnings and margins. On Simply Wall St’s Community page, Narratives let you spell out how you see the business, turn that view into a financial forecast, then into a fair value that you can compare with the current share price to decide whether the stock looks attractive or not. Narratives are kept current as new information such as earnings reports or major news is reflected in the data, so your story and fair value view can adjust as the facts change, without you having to rebuild everything from scratch. For example, one Southwest Airlines Narrative on the platform might assume a very conservative fair value and modest future margins, while another assumes a much higher fair value and stronger margins, which shows how different investors can look at the same company and reach very different conclusions about what the shares are worth today. Do you think there's more to the story for Southwest Airlines? Head over to our Community to see what others are saying! NYSE:LUV 1-Year Stock Price Chart  This article by Simply Wall St is general in nature. We provide commentary based on historical data\n    and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n    financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n    Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n    Simply Wall St has no position in any stocks mentioned.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. 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