Qantas Airways Limited (ASX: QAN) shares have been through a fair bit of pain. In the past six months, the ASX travel share has dropped 15%. Over that time, the S&P/ASX 200 Index (ASX: XJO) has risen 3%, so Qantas has underperformed by close to 20%. Can we look to history as to how Qantas could surprise this ASX reporting season?
A lot of stocks have risen in the last few months, but Qantas shares have faced a number of negative headlines relating to tickets being sold that seemingly shouldn't have been sold, a ruling that Qantas illegally fired workers and more.
But, despite all of the issues, it's possible that Qantas' result release could be more positive than investors are expecting.
Priced for weakness
It's understandable that the Qantas share price has dropped in light of these issues. There are also other factors that could impact the ASX travel share, including its need to spend heavily on replacing a large number of its planes.
But, ultimately, Qantas shares look as though they're priced really cheaply considering how much profit Qantas might generate in FY24.
I think it's a good idea to keep in mind a quote from Benjamin Graham – thought of as the person who taught legendary investor Warren Buffett – about markets and share prices:
In the short run, the market is a voting machine but in the long run it is a weighing machine.
In other words, the popularity of a stock can send the price lower in the short term, but it's the financial performance that will drive things in the longer term.
Is the Qantas share price good value?
Qantas reported in FY23 that it generated $2.47 billion of underlying profit, $1.74 billion of statutory net profit after tax (NPAT) and 96 cents of statutory earnings per share (EPS).
If Qantas generated the same statutory numbers in FY24, the Qantas share price would be valued at less than 6 times profit. I think that's a very low price/earnings (P/E) ratio.
The airline's chair revealed, very briefly, at the company's annual general meeting (AGM) in early November that "travel demand continues to be strong". While this doesn't give us much of an insight, it implies good financial performance is continuing. The oil price is, for now at least, still in the US$70s per barrel, down from the US$80s in October and November.
Qantas said at the AGM it had increased its fare prices to offset some of this higher oil cost.
The profit estimate on Commsec and from broker UBS both suggest Qantas could generate roughly the same EPS in FY24 as FY23, and that profit could keep rising in the years ahead.
The market seemed to underestimate how much travel demand there would be in the second half of 2022, and history showed that was a mistake.
There's a fair chance that the FY24 first half result, and FY24 overall, could surprise positively in terms of how strong profit generation continues to be.
I wouldn't bet 'the house' on Qantas shares, but it may be one of the most unloved ASX 200 shares at the moment, which could end up meaning it's a contrarian opportunity for the longer term.
