The Qantas Airways Limited (ASX: QAN) share price is on an incredible run, rising by 40% in the last three months, as shown in the chart below. One fund manager believes there are more potential gains to come.
L1 Capital likes to look for mispriced opportunities, and it's seeing "major valuation distortions in select stocks and sectors". The fund manager suggests that many Australian cyclical stocks are now looking good value for patient investors.
Australia's national airline continues to be an attractive opportunity in the eyes of the L1 investment team despite its 9% gain in October.
What's driving the ASX travel share higher?
The fund manager pointed out in its recent monthly update that at Qantas' annual general meeting (AGM) Qantas had highlighted ongoing improvements in operating conditions.
According to L1 Capital, Qantas increased expectations for its domestic yield due to robust travel demand and ongoing improvement in corporate travel.
The fund manager also pointed out that the ASX travel share was benefiting from lower fuel prices in the 2025 financial year to date.
L1 also noted that Qantas' international segment expectations were largely unchanged, and the airline's loyalty division remains on track to deliver double-digit earnings growth.
The L1 investment team believe this update further supports the shift to "robust shareholder returns in coming years", including a return to fully franked dividends starting in the first half of FY25.
Why is the Qantas share price still attractive?
Despite the significant rise in Qantas' valuation this year, the fund manager still thinks the ASX travel share is undervalued, with a price/earnings (P/E) ratio of less than 8.
L1 explained its bullish view on the airline:
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.
Qantas trades on a FY25 P/E of only 7.5x, despite a leading industry position, structural medium-term growth in travel demand and a high growth, capital-light loyalty division, which remains incredibly underappreciated by the market.
Of course, I'll point out that Qantas is facing the prospect of more competition in the skies from an alliance between Virgin Australia and Qatar Airways. This may be particularly troublesome on international routes and could lower revenue/margins. But time will tell how much impact that has.
