Is Southwest Airlines Co. overvalued or undervalued?

As of 30 January 2025, the valuation grade for Southwest Airlines Co. has moved from risky to very expensive. The company is currently overvalued based on its financial ratios and peer comparisons. The P/E ratio stands at 38, significantly higher than the industry average of approximately 36.05, while the EV to EBITDA ratio is 35.21, compared to Delta Air Lines' much lower ratio of 5.22. Additionally, the PEG ratio of 0.77 suggests that the stock may not be justified at its current price given its growth prospects.
In terms of performance metrics, the company has a ROCE of 9.71% and an ROE of 8.08%, which are relatively modest compared to its valuation. The stock has underperformed against the S&P 500 year-to-date, with a return of -5.18% compared to the index's 2.44%. Given these factors, Southwest Airlines Co. appears to be overvalued in the current market environment.