Allegiant Drops After Earnings: Decline or Launching Pad?

Allegiant Travel (ALGT) sold off sharply post earnings [Jul 22: Bookkeeping - Allegiant Travel Does not Please on Earnings] despite what I thought was a solid report overall. There was some talk of a slowdown in the last month of the quarter (June) but that July had seen a rebound. Whatever the reason, the stock fell, and I bailed on most of the position in case it began a freefall.

I am cutting most of my Allegiant Travel (ALGT) around $42.80. It has been all the over the map today from $41.50s to $43.50s - this name can move a lot on very little volume. I had a quite large loss on this name that has turned into a small loss and I want to keep it that way for now; I'll forgo any more upside until I see how the market reacts after the knee jerk move down. We're down to just a placeholder position at 0.1%

So with a week of time behind us, and realizing that the stock market never goes down anymore, we can now get our position back for a fraction more than the price we sold it, around $43. The last 2 days the stock has held the 50 day moving average intraday and bounced nicely, which is comforting. We're increasing this back to a 2.9% stake.

It "should" be ok as long as it holds $41.50 area, but to repeat - I've only lost money by trying to use technical analysis on ALGT.

As always I hesitate to use technical analysis on ALGT because it's a stock that seems to have a mind of its own. I will say on a positive note, oil has surged the past few sessions and usually when that happens, all airline stocks, including Allegiant, take a hammering. This has not happened the past few days so perhaps that is a good sign. Or it is just a sign that every stock in the universe is destined to go up. Either way, we have a good entry level here and in case of the 100 year flood (i.e. the market goes down) we can escape with minimal damage.

I'll stop out in the mid $41s with most of the position which would only expose us to a 3.5% potential loss. I continue to marvel stocks like this at 10x earnings are ignored while certain casino stocks at now... 140x forward earnings... for 2010 are being bid up daily to the tune of +5%. Momentum trader Nation.

Disclosure: Long Allegiant Travel in fund; no personal position

Comments

[Alan Brochs...:]

You are missing the bigger picture, I think. I guess that you are "trader" Mark and not "investor" Mark! I hope you didn't get stopped out yesterday - I added near 40 and see 39 as a more important support level. The stock was down on the drop in the load factor - people looking at trees instead of the forest. They are adding capacity significantly and filling it for the most part.

More importantly, I spent some time on their website confirming their COMPELLING value proposition. The only downside is that their flight schedules are very limited. With that said, someone in the small market can save 50-90% off of service out of their hometown airport and fly non-stop instead of one-stop. Alternatively, they could drive a couple of hours or more and spend more but pick up more selection in flights. I hadn't seen how their booking process works - you can't help but at least consider their hotel, car rental and attractions offerings.

Aug 06 08:16 AM

[SmBlkBob:]

I fly Allegiant twice a month and have done so since they began operations. My only complaint is their boarding process which has got to be cutting into their advance pricing on seats and pre-boarding.
There is no longer any point in paying for pre-boarding if you only have a small carry on as you board ahead of non pre-boarding flyers even if they have seat assignments.
Many fellow flyers have also begun opting out of advance seating assignments as what's the point? Almost everyone will board ahead of you and that includes those WITH seat assignments.
The "new" trick is to just wait until the very end of boarding as you'll most likely be able to pick what ever seat is left and perhaps a row to yourself before those with advance seat assignments/priority boarding realize there are some really nice empty seats.
The non stop feature is wonderful and I hope this airline continues although I wish they would adopt SouthWest's boarding process.

Bob

Aug 06 10:51 AM

[SmBlkBob:]

Correction to above:

Almost everyone will board ahead of you and that includes those WITHOUT advance seat assignments.

Aug 06 10:54 AM