Despite its apparently cheap stock price, investors should avoid United Continental Holdings. (NYSE: UAL ) . Fool contributor Tim Beyers explains why in the following video.
Customer satisfaction -- or lack thereof -- seems to be the principal issue. Last month's American Customer Satisfaction Index ranked United last among six major airlines. Earlier this week, J.D. Power & Associates placed the carrier fifth of six big names for customer satisfaction. In each case, peers Delta Air LInes (NYSE: DAL ) and American Airlines Group (NASDAQ: AAL ) easily outscored United.
Meanwhile, United's recent business performance suggests that a portion of unsatisfied fliers are seeking better seats elsewhere. The carrier last month reported nearly $500 million in losses in the first quarter. Delta and American each reported hundreds of millions in profits over the same period.
Analysts see a recovery on the way, but Tim says that's still no reason to buy. Why? Consider the math. Wall Street's expectation for 35% annualized earnings growth over the next five years results in a seemingly cheap 0.29 PEG ratio. The trouble is, the sector averages a 0.28 PEG. United is trading at just the sort of mediocre valuation you'd expect from a mediocre airline.
Now it's your turn to weigh in. Are you still flying United? Why or why not? Please watch the video to get the full story and then leave a comment to let us know your take, including whether you would buy, sell, or short United Continental Holdings stock at current prices.
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