Assigned seating and extra legroom were still just forecasts on paper when Southwest Airlines entered late 2025, with bulls and bears arguing over whether its overhaul would really pay off. For Southwest Airlines shareholders, the return over the past year was 43.6%, including dividends. If you had been weighing a purchase back on 5 November 2025, what would you have needed to believe about those product tweaks and new fees before any of the record 2026 results hit the headlines?
The easy part of this move is behind Southwest Airlines. Zero in on 42 high quality undervalued stocks for companies trading below our estimates.
The Argument Investors Were Really Having About Southwest Airlines
The shares cost US$31.62 at the start of the period, and anyone looking at Southwest Airlines then was really choosing between two very different stories about where the business might head next.
The bullish narrative put Fair Value at US$46, a rough guide to what believers thought the stock could be worth if product changes and route expansion played out. It leaned on expectations that new bag fees, assigned seating, and basic economy would meaningfully lift revenue and margins.
The bearish view argued for a Fair Value of US$19 based on the idea that remote work would structurally reduce higher margin business travel, while rising labor costs and dependence on a single Boeing 737 fleet could keep long run profitability under pressure.
What The Results Changed For The Southwest Airlines Thesis
Record Q3 2026 revenue of US$8.4b alongside net income of US$270m, up from US$54m on US$6.9b in Q3 2025, leaned toward the bullish Southwest Airlines story that product changes could lift earnings. A higher net margin of 3.2%, compared with 0.8% a year earlier, pointed the same way. Rising fuel costs and trimmed profit guidance still meant the cautious case stayed alive, so the evidence cut both ways.
The real hinge here was whether new products and fees would visibly move revenue and profitability. For any other airline, you would test the same claim by tracking unit revenue, absolute profit, and net margin after a major fare or product overhaul rather than assuming customer uptake based on announcements alone.
What Southwest Airlines' Price Already Assumes
Southwest Airlines now trades at US$44.44, with this Narrative’s Fair Value sitting below that level. The Narrative argues that a lot of optimism is already in the quote given recent product changes, loyalty gains, and capital spending.
For today’s valuation to hold, investors would need to judge that revenue segmentation and technology and fleet spending translate into earnings that consistently outrun fuel, capacity, and reputational pressures.
"The main factor that has to go right is that Southwest Airlines converts its new product segmentation, loyalty growth, and technology and fleet investments into sustained earnings power that outweighs fuel, capacity, and reputational headwinds."
One Narrative has put a figure on that disagreement. → See the Narrative with its lower Fair Value, assumptions and all
Go Straight To The Source
The story behind this run has already been told. The next one could be taking shape somewhere else. Where could you start looking before it becomes the headline?
- Company 1 - 22% below our estimate - ships memory and storage that currently bottleneck high-intensity AI infrastructure builds.
- Company 2 - 49% below our estimate - scales an asset-light hotel network while layering on a fast-growing retail platform.
- Company 3 - 43% below our estimate - converts shorter-cycle subsea projects into higher margin orders and long duration services work.
Those are three of them. See all 24 companies with the balance sheet to back it up →
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