Buy LUV; thesis relies on margin recovery to pre-Covid levels (10-15%) and share buybacks, targeting ~28% return based on average valuation assumptions.

Okay, next, Southwest Airlines. Now, airlines are making people feel anxious. Guys, it's making me anxious . Even Buffett said it's a tough business. But I think Southwest is different.

Prior to Covid, Southwest had not recorded a single year of losses, and had been operating with profit margins of 10 to 15% in recent years with complete regularity. This is almost unprecedented in an industry where competitors are constantly going bankrupt.

For me, this has always been a bet on the recovery of profit margins .

So, let's start with the optimistic side. A record quarter with sales of 8.4 billion, an increase of 16 %, and earnings per share more than doubled compared to the previous year.

What is the pessimistic side? Well, fuel costs jumped by about $900 million in one quarter, and UBS lowered its target price from $56 to $49 . Let's take a look at Southwest here and see what the numbers reveal.

Because this is extremely important when analyzing the situation. Well, the stock is trading at $42. The market value is $21 billion, and guys , that's actually a problem for me here.

The total value of the organization is $40 billion . This means $20 billion in debt. This is the only thing that worries me about " South West". Their debts have skyrocketed .

Let's take a look at their debt in general, because this is an important metric to monitor. And here I may be wrong. Okay, guys, here we have the pre-Covid period. They had $16 billion in total liabilities, and that has jumped to $25 billion.

The good news now is that it has started to decline. Not as much as we would like, but it has started to decline anyway. So, I like that they understand how important it is to keep this company's debt low.

Returns on capital are currently low, but were very high before Covid. They are gradually regaining their levels. The average free cash flow for the five years is 1.23 billion.

Let's see what the situation was like before Covid. Let's move on to the cash flow statement. Let's go down here. Guys, before Covid the numbers were 3 billion, 3 billion, 1.7, 2.1.

This is the level I hope they will reach . If they can return to profit margins of 10 to 15% with revenues of $30 billion, they will generate more than $3 billion in free cash flow. This is what I love to see.

level I hope they will reach . If they can return to profit margins of 10 to 15% with revenues of $30 billion, they will generate more than $3 billion in free cash flow. This is what I love to see.

And now, as you can see, their profit margin over the past ten years is 4%. Why? Because that included the COVID period. In the past five years, it was 2.2%. If you look at pre-Covid times , it was always between 10 and 15%, yet last year they achieved 2.8%.

Do you see why I am so optimistic? If they can get close to double digits, it will be a completely different company.

This base is probably not very attractive. Oh, I'm really surprised by this. Four "wrong" marks and four "correct" marks. Low cash flow, revenue, net income, and outstanding shares.

This is what I love. They are buying their shares like crazy . Why? They realized that their shares were undervalued and they used their money to buy them back. This is the kind of company that cares about its investors.

When they sit down and say, " Our stock is cheap. Let's buy back the shares. This gives our investors a bigger slice of the pie."

Okay, let's move on to the analysts' estimates. Guys, 3.38 per share this year, to grow to 7.30. That's more than double over the next four years. Let's put it this way. If you believe this is a premium company and believe in multiplying 7.32 by a price-to-earnings ratio of 20, you will reach $146 per share four years from now.

The share price is currently $42. This means more than three times as much four years from now if you believe it will happen .

Now let's take a look at the revenue. 33 billion to grow to 40 billion over the next four years. This means 4%, 4%, 7%, and 5%. Not a large growth rate. Why ? It's an airline. Will we see a recession soon? These things are indeed important.

So, let's run it into our stock analysis tool and find out the right price to pay for this company. Okay guys , over the next ten years, I've set revenue growth targets of 3%, 5 %, and 7%.

I set a profit margin of 8%, 11% and 14%, and the same for free cash flow. Guys, look at their free cash flow. The 10-year average was 9.2%, after accounting for 4.7% for the past five years.

So, you could say that 10 years ago and before, they were printing money at a rate exceeding tens of millions of revenues. That's

Next, do I think this is a standout company compared to the S& P index? It's an airline. So, I'm a little more cautious , but I think it's one of the best companies. 16, 18, and 22.

Once again, with a desirable return of 9.5%, I pressed the analyze button. The share price is currently $42. Guys, I have a low price at 75, a high price at 218, and an average price at 133.

That's why I'm not worried about the short term for these stocks. I believe that if the average assumptions, which I consider reasonable, are met, I can achieve a return of 28% based on today's price.

This is what I believe holds a lot of potential here.

Do I care if the stock is low or high this year? I don't even know if it will be low or high this year. I have no idea, and I don't care . Now, you might be sitting there wondering, " Why doesn't he care?"

Hey guys, for those of you who own a business or have a family member who owns a business, do you care about the value of work on any given day? no. What they care about is whether they can implement it?

All I care about is whether I think Southwest will be a bigger and better company 10 years from now, and whether I can pay a reasonable price today that gives me a good return on my capital .

This will be the principle I apply to every company I ever invest in .