JetBlue (NASDAQ:JBLU) is a low-cost airline that serves passengers in North and South America with more than 1,000 daily flights on average. The airline stock has been range-bound for the past year and a half, moving between $19 and $15.50. 

Investors are bullish about the company's optimistic profit forecasts for next year, and initiatives to improve revenue and earnings with route reallocation, cost restructuring, load optimization, and purchases of more efficient new planes. The company also has an advantage over competitors that are dealing with grounded Boeing 737 MAX airplanes while regulators investigate the safety of those planes. JetBlue's fleet is almost entirely composed of Airbus (OTC:EADSY) airplanes, so it has an operational edge in the short term.

JetBlue looks mediocre in key operational metrics

JetBlue's passenger load factor, a measure of the extent to which flights are filled, was 84.7% through Q3 2019, which compares poorly to peers. Delta (NYSE:DAL) is among the industry leaders on this metric, and it is 180 basis points higher. The disparity in load factor and average ticket pricing also lead JetBlue to lower revenue per available seat mile (RASM), an important metric tracked by airlines to measure how efficiently they generate revenue with their services. JetBlue's $0.1222 RASM was 28% lower than Delta's.

A JetBlue airline takes off

Image Source: JetBlue

JetBlue has delivered a 10.3% operating margin despite the above shortcomings, 350 basis points above the airline industry average. This is comparable to United's (NASDAQ:UAL) operating margin and superior to American Airlines', but inferior to Delta'sSpirit's, and Southwest's. JetBlue's 9.57% return on invested capital (ROIC) stacks up in a very similar way. This pattern suggests that JetBlue does a fair job of utilizing its financial resources to deliver returns, but there are more efficient peers in the market. 

JetBlue's valuation metrics tell a mixed story

JetBlue's forward price-to-earnings ratio is 8.2, well below the airline industry average of 14.4. The company's 5% to 6% top-line forecast growth rate and 21% earnings growth forecast results in a very attractive PEG ratio well below 1.0.

JetBlue has among the highest analyst consensus growth forecasts among airlines. The stock's 5.07 EV/EBITDA compares favorably to the industry average of 6.65, and it is lower than Delta, Southwest, United, American Airlines, Allegiant, Spirit, and Alaska Air

These would seem to imply that the stock is cheap, but other metrics complicate this. JetBlue's 16.1 price-to-free-cash-flow is high among airlines, which average 11.8 on this metric, which could indicate relatively low-quality profits, as the company has struggled to generate cash flows in line with accounting profits. Investors should monitor this to determine if cash flows can approximate earnings in the long term. Further, JetBlue is one of the few airline stocks that does not pay a dividend. That means that investors must rely entirely on price appreciation to realize returns, whereas other airlines create some income to supplement gains or offset losses. However, the company has delivered three straight years of meaningful share repurchases, driving a more than 6% buyback yield. 

JetBlue's stock should outperform if the company can match the current growth outlook and succeed on the revenue and profitability initiatives that have been communicated by management. Improving cash flows and sustained growth would mean the valuation ratios are very inexpensive compared to its peers. However, any failure to meet these high expectations will almost certainly lead the stock lower.

Airlines are also cyclical stocks and heavily exposed to oil prices, so a recession or spike in oil prices are two scenarios completely beyond the company's control that would see shares slump. There is clearly a narrative here that can appeal to some value investors. But the risks to this are clear, and there are other airline stocks with better operational metrics that investors can own at attractive valuations.

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.