Is JetBlue Destined for Greatness?

Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what JetBlue Airways' (JBLU -3.12%) recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you're about to see tell JetBlue's story, and we'll be grading the quality of that story in several ways.

Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always reported at a steady rate, we'll also look at how much JetBlue's free cash flow has grown in comparison to its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If JetBlue's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.

Is JetBlue managing its resources well? A company's return on equity should be improving, and its debt to equity ratio declining, if it's to earn our approval.

By the numbers
Now, let's take a look at JetBlue's key statistics:

JBLU Total Return Price data by YCharts

Source: YCharts. * Period begins at end of Q2 2009.

JBLU Return on Equity data by YCharts

Source: YCharts. * Period begins at end of Q2 2009.

How we got here and where we're going
JetBlue pulls off an impressive six of seven passing grades. Without a dividend, that's as many as it can get, but it's still a very strong showing for a company that operates in a very weak industry.

JetBlue pulled off a victory in the 2012 JD Power North America Airline Satisfaction Survey in June, beating out fellow low-cost regional carrier Southwest Airlines (LUV -0.54%) and full-service champion Alaska Airlines (ALK -1.89%) for the overall crown. However, as Fool contributor Eric Volkman notes, being a low-cost leader also means being a low-margin business -- Alaska Airlines usually posts a net margin twice as high as that of JetBlue or Southwest, if not better. Those slim margins aren't encouraging for any investors looking for an eventual dividend, but the airline industry isn't known for paying back its shareholders.

In an earlier survey, JetBlue lost out to Southwest and tied with both Alaska and Southwest subsidiary AirTran for overall experience. JetBlue's at least done a better job than Southwest in controlling fuel costs, which are a frequent threat to carrier profitability. Its 10% increase in costs per gallon over the summer was also half that weighing United Continental (UAL -2.52%) down. However, JetBlue's gross margin is virtually identical to United Continental's, which scored poorly on the earlier survey. Perhaps perception isn't quite as important as price point for travelers.

Putting the pieces together
JetBlue has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.