It has been a rough 2024 for Spirit Airlines (SAVE 3.90%). Well, a rough last 10 years, if we're being honest. The discount airliner's proposed merger with Jet Blue was blocked by the U.S. government and it just reported another weak quarter of negative cash flow. It has struggled to generate profits for years and has a looming debt load that has major investors concerned.

Today, shares trade at a cheap looking $3.75, off over 95% from all-time highs set 10 years ago. Does that make Spirit Airlines a buy-the-dip candidate?

Another quarter, another period of losses

On May 6, Spirit Airlines reported its earnings for the first quarter of 2024. The company continues to struggle compared to the other major airliners in the United States. Operating loss was $207 million -- a negative 16.4% operating margin -- which was worse than the negative 8.3% margin it posted in the first quarter of 2023.

Over the past few years, investors haven't worried about Spirit's financials because of its proposed merger with Jet Blue. Now, with the government blocking this merger, they have had to focus on the actual business operations of Spirit Airlines and whether it is a viable company. So far, the results have looked ugly. It is no surprise then to see the stock down a whopping 77% year to date.

Spirit's cash flow is a large concern. Its free cash flow was negative $781 million over the past 12 months, a number that has worsened in recent quarters. With less than $1 billion in cash on the balance sheet, the company could run out of cash within the next 12 months if this cash burn continues.

Don't forget the debt load

The earnings and cash flow statements for Spirit Airlines are ugly. Its liabilities look even more concerning. Spirit has over $3 billion in long-term debt and $157 million in debt due within the next 12 months. It is hard to see how it will pay back this debt if it keeps burning cash flow and losing money.

This puts Spirit in a precarious financial position. Unless it is able to refinance these loans -- which creditors are going to be skeptical of given its low cash pile and negative cash flow -- the company may be on the path to a restructuring or bankruptcy. This would likely wipe out the entire value for common shareholders and give the ownership of the company to the bondholders.

SAVE Book Value (Per Share) Chart
SAVE Book Value (Per Share) data by YCharts.

Should you buy the dip on the cheap?

It's pretty simple: Don't buy stocks of companies that continue to lose money and have insurmountable piles of debt. One might argue that Spirit Airlines is cheap, given the current discount to book value. Book value is an estimate of the net worth of a company's balance sheet; it takes all of a company's assets and subtracts the liabilities.

Spirit currently trades at a book value per share of $9.15. With the stock below $5, investors could theoretically double their money if Spirit decided to liquidate and sell all of its assets (like planes, corporate offices, etc.) tomorrow. There are two problems with this train of thought, though. First, Spirit would likely have trouble selling all of its assets immediately. Who is buying out its corporate offices and equipment? Will its planes actually sell for the estimated value on the balance sheet? There is a lot of uncertainty here, and management has not said anything about planning for a liquidation in the immediate future.

Second, Spirit's book value has been declining quickly given its unprofitability and cash burn. It is off over 72% from all-time highs and falling quickly. This is not a good position for a company to be in.

Add it all together, and Spirit Airlines is in a tough spot and could have further downside from here, even though its stock trades at a cheap-looking price below $4 a share. Investors should avoid buying shares unless it can fix its profit and debt issues.