Spirit Airlines (SAVE): Disruptive Stock Number One

By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 12/31/13 Sign up for Cabot Wealth Advisory—it’s free!

Disruptive Stocks are companies that address a mass market, and thus have the potential to impact our lives for the better.

Ideally, these are companies that are young and not yet well known or well respected. Thus they have the potential for increased perception by investors as time goes by.

Ideally, these stocks are young and not widely owned. Thus they have the potential to be bought by more investors—especially institutions—and thus see their stocks soar over time.

All the Cabot editors have made contributions to this list of 10, and I’ll be profiling them—one a week, in no particular order—over the next 10 weeks. I hope you enjoy them.

Spirit Airlines (SAVE) is famous (or infamous) for charging more for any extra it can charge for, while driving down the cost of a basic airline seat. The company is not yet at the point of charging to use the restroom, but pretty much everything else costs extra, including checked bags, bags that go in the overhead bins, food and drinks, and even the printing of boarding passes by agents.

The result is that budget travelers get to fly for rock-bottom prices and those who can afford to pay a little more can choose to do so. I think it’s a great business model.

Spirit is also notable for having no debt, which is amazing for an airline! While most major airlines are in debt up to their eyeballs (the exception is Southwest with “only” 41% debt), Spirit has none. That’s partly a result of its youth (there’s no aging workforce or aging equipment) and partly a factor of its fairly recent IPO.

Revenues and earnings at Spirit are growing strongly, as the company expands its network to replace routes cut by the big airlines. In the third quarter, revenues grew 33% from the year before, to $457 million, while earnings surged 126%, to $0.79 per share.

Lastly, the chart is young (the IPO was May 2011) and its main trend is up, driven by the buying of investors small and large who are just recognizing the potential here.

Looking at the big picture, it’s likely the big old major airlines will continue to merge and eventually die, crumbling under the weight of antiquated equipment, staff and practices, while creative young carriers like Spirit take increasing market share. I think it totally qualifies as disruptive.

Now, you could simply invest in SAVE right here. You could delay buying until the stock breaks out to new highs—ideally on big volume. Or you could become a regular reader of Cabot Stock of the Month, where I recently recommended SAVE, and get my regular updates every week.

For the record, there are currently eight stocks in my Cabot Stock of the Month portfolio, with an average gain of 86%. There are no losses. If your portfolio’s not as healthy, maybe you should take a look. Click here.