Southwest Airlines has delivered a 44.8% share price gain over the past three years, which puts fresh focus on whether the current US$39.28 level is supported by what the business is earning today. With the stock also swinging around in recent months, the key issue for you is how those earnings stack up against the price now on screen.

• The 44.8% return over three years means long term holders are sitting on meaningful gains. The question is whether the underlying earnings profile still justifies staying exposed at this price.
• The move into airport lounges and a premium credit card partnership can reshape Southwest Airlines' cost base and revenue mix. This may influence how investors think about the durability and timing of future profit streams.
• Your read on Southwest Airlines is one view; the desks covering it have another. See what analysts think Southwest Airlines's shares could be worth.

The issue now is whether Southwest Airlines' current share price is reasonably aligned with the earnings power the company is delivering today.

If you want a cleaner benchmark while you assess Southwest Airlines around US$39.28, it can help to compare it with other companies screened for 34 high quality undervalued stocks

Does Southwest Airlines Look Fairly Valued on Earnings?

The P/E ratio suits Southwest Airlines because earnings remain the cleanest link between what the airline produces and what you are paying today. On that yardstick, the stock trades on about 23.0x earnings, compared with an Airlines industry average near 11.1x and a peer group around 10.1x. That is a clear premium, which means the market is already assigning a higher value to each dollar of profit than it does for many other carriers.

The fair value framework, which adjusts for Southwest Airlines' margins, size and risk profile, points to a P/E not far from where the shares change hands now. As a result, the current multiple sits close to that tailored reference point rather than far above or below it. Because the planned lounge rollout and premium credit card tie up with Chase are meaningful upgrades to the customer offer, the valuation suggests investors are already baking in the potential benefits of that move rather than treating it as a free option. Explore the numbers behind Southwest Airlines's P/E valuation.

The Southwest Airlines Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Southwest Airlines pick up where the P/E discussion leaves off and explain which combinations of future growth, profit margins and earnings paths would need to occur for the stock to be worth meaningfully more or less than it is today. They sit on the Community page and turn a single valuation output into a set of clear future conditions, so you can watch over time whether those moving parts still line up with the original number.

The community is split on Southwest Airlines, with one group seeing meaningful upside and another arguing recent gains already stretch expectations.

Bull case: 24% undervalued

"Loyalty program optimization and enhanced partnership agreements, such as the one with Chase, offer robust avenues for incremental EBIT…"

Discover why this Narrative puts Southwest Airlines at 24% undervalued.

Bear case: 12% overvalued

"The company's sole reliance on the Boeing 737 family exposes Southwest to ongoing operational risk and supply chain vulnerability…"

Explore why this Narrative puts Southwest Airlines at 12% overvalued.

Before making a call on Southwest Airlines, there is one more piece to check

The share price and P/E only tell part of the story, because the people directing Southwest Airlines and the way their pay is structured can heavily influence how that story unfolds. See who runs Southwest Airlines and how they are paid.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.