Despite An Overall Bullish Outlook, Warren Buffet Would Not Approve Of United Airlines Stock

Warren Buffett has been very critical of airline companies and their stock in general. Since they spend so much on their aircrafts, they are rarely ever making any money. This is a tough situation for many airline companies since they need those extra aircrafts to really bring in more customers and increase growth.

Most recently, United Airlines managed to report very strong Q3 results, which took many analysts by surprise. Again, as Warren Buffett reiterated, this money is able to turn a major profit, since maintenance and buying new aircraft is just part of how they do business.

Since both maintenance and buying a new aircraft are both very expensive, companies need to make wiser choices. However, despite these major consequences tying most airlines to the ground, United Airlines has been able to profit immensely.

Not only has it been able to earn an exceptional amount over its tenure, but they have also put out a major forecast. They believe that it will be able to reach pre-pandemic levels by the next statement. While certainly a bold claim, it is also one that many have second thoughts about the stock option really reaching that high.

Too good to be true?

Warren Buffett remains one of the most influential investors in the world, as he has made predictions that have helped save people millions. However, it doesn’t take someone to be a very influential investor to see that this is a good sign.

Even if someone doesn’t believe that prediction will be making any major waves anytime soon, the increase in stock price is enough of a justification for most people to buy it. However, the important thing about these types of stock options is that a trader like Warren Buffett would never buy into them.

An Annual Growth Rate That Could Affect Earnings

United Airlines made it very clear that it was looking to expand at a rate of 4% to 6% compounding growth. Therefore, with each passing year, their operational expenses would grow exponentially. Furthermore, these greater operational costs would also come with rising maintenance costs.

These planes will need regular maintenance and buying them from the get go is always expensive. Therefore, with how the operational costs continue to increase, even if the country sees a bullish turn, that will not last long.

Does Not Often Certain Profit

Right now, there is no guarantee that the market will be making any grand progress or that it will not be able to maintain its currency earnings. And as those earnings start to fail, people will start moving away. In the end, airlines can always be a trick investment since there is no guarantee they can provide better profits.

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