Would Warren Buffett buy Qantas shares in December 2024?
The Qantas Airways Ltd (ASX: QAN) share price has soared more than 65% this year, despite all of the challenges it has faced. The ASX travel share is certainly not as cheap as it was several months ago, but is it cheap enough for investing legend Warren Buffett to buy?
Buffett's company, Berkshire Hathaway, did invest in airlines before COVID-19 hit the world, but decided to sell amid the pandemic. When Berkshire Hathaway sold its US airline holdings in 2020, Buffett had this to say:
I don't know that three, four years from now people will fly as many passenger miles as they did last year. You've got too many planes. The world has changed for the airlines. And I don't know how it's changed and I hope it corrects itself in a reasonably prompt way.
I don't know if Americans have now changed their habits or will change their habits because of the extended period.
Once travel restrictions ended, airlines rebounded back to strong profits. The shares of those US airlines have risen significantly since 2020, and so have Qantas shares.
So, is Australia's national airline a good buy today or have investors missed their chance?
Would Warren Buffett buy Qantas shares?
One of Buffett's more famous investment sayings is:
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Qantas is certainly a leading airline, and there is a lot to like about the company
The fund manager, L1 Capital, agrees, and recently wrote:
We believe Qantas remains very well placed over the medium term given it has Australia's best loyalty business (which is expected to double earnings over the next 5-7 years) and a raft of brand new, more fuel-efficient aircraft to be delivered, along with Project Sunrise, which will enable direct flights from Melbourne/Sydney to London and New York from 2026.
Despite the large share price rally, Qantas trades on a FY25 P/E of only 8.3x. We believe this low earnings multiple does not reflect its leading industry position, structural medium-term growth in travel demand and a high growth, capital-light loyalty division, which remains underappreciated by the market.
So, it's certainly possible that the airline could keep rising.
However, there's also a danger that gains may be short-lived if the strengthened Virgin Australia business is able to better compete with Qantas within Australia and on overseas travel. A lower profit margin per flight could decrease investor excitement about the airline.
My verdict
If I were Warren Buffett, I don't think I'd call it one of the best opportunities out there in the world. But, it may still be able to beat the S&P/ASX 200 Index (ASX: XJO) because of its low price/earnings (P/E) ratio, the likely resumption of dividends and the continuing strong demand for travel.
If fuel prices stay as low as they are or go even lower, then Qantas' profit could noticeably benefit in FY25 and FY26. But, that's not a certainty. There are a few other sectors I'd look to first as potential investment possibilities.
The post Would Warren Buffett buy Qantas shares in December 2024? appeared first on The Motley Fool Australia.
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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