An underrated value stock? I think investors should take a closer look

Value stock or growth stock — it doesn’t really matter. Copa Holdings (NYSE:CPA) looks like it might be a good deal and have solid growth ahead.

It’s one of Latin America’s premier airline operators. Despite its strong fundamentals and attractive valuation, I can’t buy the stock. My brokerage, Hargreaves Lansdown, doesn’t currently offer access to Copa shares, leaving many unable to consider capitalising on what could be a real opportunity.

A strong business

Copa operates from a strategic hub in Panama City, enabling efficient connections through the Americas. The airline’s operational performance is industry-leading, with a 90.8% on-time rate and a 99.9% flight completion factor in the latest quarter. It also reported that load factors remain high at 86.4%, and capacity (measured in available seat miles) grew 9.5% year-on-year.

One of Copa’s defining strengths is its cost structure. The airline operates a single aircraft type – the Boeing 737 family -across its fleet of 112 planes. This strategy simplifies maintenance, training, and operations, resulting in best-in-class unit costs. Ryanair, valued at 16 times earnings, does the same.

For the latest quarter, operating cost per available seat mile, excluding fuel (Ex-fuel CASM), dropped 4.3% year-on-year to 5.8c, while overall CASM fell 7.7% to 8.8 cents. These are really important figures and they underpin Copa’s consistently strong margins. Its EBIT margin stands at 22.7%, EBITDA margin’s at 30.4%, and net income margin’s 17.6%. These are all well above sector averages.

Metrics scream ‘undervalued’

From a valuation perspective, Copa’s shares appear significantly undervalued. The stock trades at a price-to-earnings (P/E) ratio of just 6.1. That’s well below its historical average and sector peers.

Consensus estimates suggest this multiple could fall even further in coming years, with projected P/E ratios of 6.3 in 2025, 5.7 in 2026, and 5.0 in 2027 as earnings grow. Analysts expect EPS to grow by 8.7% in 2025, 10% in 2026, and 13.8% in 2027.

And these figures excite me because they point to a price-to-earnings-to-growth (PEG) ratio below one — typically a sign of an undervalued stock. The PEG ratio here’s 0.59.

Such a low valuation, combined with a forward dividend yield of 6.6% and a payout ratio below 44%, offers a rare margin of safety and the potential for both income and capital appreciation.

The balance sheet’s fairly robust. It has $1.9bn debt but £916m in cash. This seems manageable given the cash flows and size of the enterprise. It’s also very rare to find an airline with a strong net cash position — hence why my sector favour remains Jet2.

The bottom line

However, investors should be mindful of risks. As a Latin American carrier, Copa’s exposed to regional economic and political volatility. US trade policy undoubtedly will have an impact and, let’s be honest, we can’t be entirely sure what will happen next. It also true that the aviation industry is cyclical and the impact of downturns might be more pronounced in the developing economies Copa serves.

Nonetheless, the discount to North American peers is substantial. It’s certainly worthy of consideration. And while I can’t buy this stock, my wife can with her brokerage. It’s something we’ll look at closely.

The post An underrated value stock? I think investors should take a closer look appeared first on The Motley Fool UK.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Copa Holdings, S.a. right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Copa Holdings, S.a. made the list?

See the 6 stocks

More reading

James Fox has positions in Jet2 plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.