Delta has had an impressive run over the past six months as its shares have beaten the S&P 500 by 25.5%. The stock now trades at $91.99, marking a 32.3% gain. This performance may have investors wondering how to approach the situation.
Is now the time to buy Delta, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Delta Will Underperform?
We’re glad investors have benefited from the price increase, but we’re cautious about Delta. Here are three reasons we avoid DAL, plus one stock we’d rather own.
1. Weak Growth in Revenue Passenger Miles Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Delta, our preferred volume metric is revenue passenger miles). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Delta’s revenue passenger miles came in at 56.47 billion in the latest quarter, and over the last two years, averaged 1.4% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Cash Flow Margin Set to Decline
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict Delta’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 6.1% for the last 12 months will decrease to 3.6%.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Unfortunately, Delta’s ROIC averaged 3.2 percentage point decreases each year over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies helping consumers, but in the case of Delta, we’re out. With its shares topping the market in recent months, the stock trades at 16.2× forward P/E (or $91.99 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Delta
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Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
