Is Southwest Airlines Co. overvalued or undervalued?

As of 17 October 2025, the valuation grade for Southwest Airlines Co. has moved from fair to expensive, indicating a shift towards overvaluation. The company appears overvalued based on key metrics, including a P/E ratio of 38, which is significantly higher than the industry average, and an EV to EBITDA ratio of 11.42. Additionally, the PEG ratio stands at 0.77, suggesting that the stock may not be priced favorably relative to its growth potential.
In comparison to peers, Southwest Airlines Co. has a higher P/E ratio than Delta Air Lines, Inc. at 10.73 and United Airlines Holdings, Inc. at 8.92, both of which are considered fairly valued. The recent stock performance shows that while Southwest Airlines outperformed the S&P 500 over the past week and month, it has lagged significantly in the longer term, with a year-to-date return of -0.30% compared to the S&P 500's 13.30%. This long-term underperformance reinforces the notion that the stock may be overvalued.