It's been just slightly more than a year since I introduced my list of 10 small-cap companies to rule them all. Allegiant Travel
| Company | Allegiant Travel |
| Performance Since Pick | 36% |
| Price / Book | 3.18 |
| Forward P/E | 11.5 |
Source: Yahoo! Finance.
Where it's been
Allegiant may not be consumers' favorite airline at the moment, considering that it's following in Spirit Airlines'
Allegiant's operating margins have recently been lower in light of rising fuel costs, but they remain much higher than the industry average. There are a few reasons that, even with lower operating margins, Allegiant continues to outperform.
First, Allegiant can choose which routes its wants to operate. Unlike national airlines, which can't just shut down a route that is unprofitable, Allegiant can adjust its flight patterns as it sees fit. Second, Allegiant's secondary fees (baggage, etc.) are high-margin and head almost entirely to the company's bottom line, which allows it to stick to its low teaser fares. Finally, the company's expenses are lower than those of most national carriers since it tends to purchase older aircraft. All of this translates into an industry-high net profit margin of 6.34%.
Where it's headed
There really doesn't seem to be much standing in the way of Allegiant Travel heading higher other than customer satisfaction. At a time when United Continental Holdings
Allegiant is also in rarefied air in that it has more cash on its balance sheet than debt. That's really an astounding feat considering that all of the national carriers have gone bankrupt at least once in the last 10 years because of burdensome debt levels. Even Wall Street's regional darling Southwest Airlines
Foolish roundup
Thus far, Allegiant has been relatively successful in getting its customers to accept its "optional fees" without too much resistance, although there is a fine line between offering steep discounts and feeing your customers to death. Based on Allegiant's 36 consecutive quarterly profits, I find it likely that it will continue to outperform in the near term unless fuel prices soar through the roof. At more than three times book, I wouldn't call Allegiant an overwhelming value play, but I still see reasonable upside to the stock at these levels and am therefore keeping my CAPScall of outperform open on Allegiant.
What's your take on Allegiant Travel? Is this stock headed to cruising altitude or has it begun its descent? Share your thoughts in the comments section below.
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