What happened

Shares of Hawaiian Holdings (NASDAQ:HA) sank 12% in July according to S&P Market Intelligence. Although the company reported a strong second-quarter earnings report, it couldn't allay the fears of investors who were still reeling from news that the airline would be facing increased competition next year. Investors weren't alone in their bearish outlook: Analysts also demonstrated concern, slashing the stock's target price.

So what

Beating the analysts' consensus estimate of $1.53, Hawaiian Holdings reported earnings -- excluding $0.09 from non-recurring items -- of $1.58 per share. Investors, however, were unimpressed. In fact, the stock's decline in July extended the trajectory which it had followed through the first half of the year -- a period in which shares had fallen more than 16%.

A commercial jet lands on a runway with the setting sun in the background.

Image source: Getty Images.

So what grounded investors' excitement? For one, the company expects operating costs to jump in the third quarter. According to the outlook management provided in the Q2 earnings report, the company's operating cost per available seat mile (CASM) for Q3 is expected to increase 17.6% to 21.1% year over year. This would further extend a streak of rising costs in 2017. In the first six months of fiscal 2017, the company reported CASM of 11.66 cents -- a 12.4% increase over the same period last year.

Another factor that contributed to the stock's decline in July was the ongoing concern regarding the increased competition the company is facing. United Continental (NASDAQ:UAL) recently announced its plan to extend service to 11 routes between the continental U.S. and Hawaii. According to United Continental's press release, the increased service will result in "offering customers more flights between the mainland and the Hawaiian Islands than any other carrier."

Besides rising costs and increased competition, shareholders were also swayed by the bearish outlook Wall Street assumed on the stock. In July, analysts at Deutsche Bank shaved almost 19% off their price target. Having previously set a price target of $64, Deutsche Bank's analysts now have a target of $52 per share. And they weren't the only ones expressing a pessimistic outlook. Analysts at Cowen also downwardly revised their price target on the stock in July, dropping it from $50 to $47.

Now what

Though shareholders found the second quarter to be a disappointment, this seems to be more of an overreaction than something truly warranted. For one, Hawaiian Holdings reported strong growth from its international segment. For the three- and six-month periods ending June 30, 2017, international revenue increased 43.1% and 38.3% year over year, respectively. And to partially assuage investors' fears of increased competition, United Continental's increased service -- from Chicago, Denver, Los Angeles, and San Francisco -- should not affect Hawaiian Holdings' international business. Looking further head, the company has the potential to strongly benefit from the incorporation of (at least) 16 A321neo aircraft into its fleet between 2017 and 2020.

Despite the sell-off, Hawaiian Holdings still offers investors who are looking for exposure to an airline a compelling option -- one with an attractive price tag. Over the past five years, Hawaiian Holdings has averaged a trailing price-to-earnings ratio of 15.4 according to Morningstar. Currently, its stock is valued at 10.4 times trailing earnings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.