The Qantas Airways Limited (ASX: QAN) share price is up 9% in a month and it's 45% higher than a year ago.
But share prices don't keep going up 9% every month forever. The question is whether today's level represents a good price for the longer term.
What's the current Qantas share price valuation?
We're now into the 2024 financial year, so I'm going to look at the profit forecast for the ASX travel share in the current financial year.
The airline has seen a massive swing to profit after the difficult COVID period. An almost complete year of full capacity for domestic and international travel could see the business generate $1.04 of earnings per share (EPS) in FY24.
If that happened, it would mean the current Qantas share price is valued at just over 6x FY24's estimated earnings. For most industries, that would be seen as very cheap.
However, could this be as good as it gets for Qantas?
Negative short-term outlook?
Harrison Massey from Argonaut wrote on The Bull that the ASX airline share is a sell because of current economic impacts. He wrote:
The airline has benefited from a recovery in commercial travel. However, we expect discretionary consumer spending to be impacted in the short term from the ongoing cost of living crisis and stubbornly higher interest rates. Combined with recent stronger crude oil spot prices, Qantas looks like a selling opportunity for investors who have made gains.
It's understandable the short term could be worrying considering households have seemingly done a lot of travelling over the last 18 months. Can there really be further growth from here?
However, a month ago, Qantas made some positive commentary about the industry situation:
Travel demand remains strong and data shows that consumers continue to prioritise travel over other spending categories.
The company also said it's on track to deliver the financial performance it had forecast for FY23 in its May market update.
Buy, hold or fold for the Qantas share price?
After its strong performance in the last month and past year, I wouldn't call it a great buy. It's on a low price/earnings (p/e) ratio, but I'm not sure what could lead the company to deliver strong capital growth if earnings plateau in FY24 and FY25.
The ASX travel share needs to keep spending on new planes and may face more competition if the industry continues to remain stable.
If Qantas implemented a dividend payout ratio of say 50%, that would be a very healthy dividend yield. But, until then, I'd be inclined to take some profits off the table.
