• United Airlines Holding (NASDAQ:UAL) is down 6% year-to-date (YTD) and off over 27% from its peak
• The company says it does not expect to meet 2019 levels in 2022 and analysts don’t expect profits until 2023
• UAL stock trades for just one-third of forecast revenue for 2022 and 28% of revenue in 2023, a very cheap valuation

United Airlines has had a rough year. At the end of December, UAL stock was at $43.78, but by March 23 it had drifted down to $41.53. That represents a drop of 5.1% so far this year.

In fact, in the 9 months, it’s off over 27% from a peak price of $60.29 on June 2.

That seems too much. A closer look shows that UAL stock is too cheap. In fact, the stock probably already reflects a good deal of the bad news. This is because the market often anticipates bad news well into the future. This could present a good opportunity for patient value investors.

Where Things Stand at United Airlines

On Jan. 19, UAL reported good earnings for 2021. Its Q4 performance was at the level of achieving all its financial targets.

But the company used a good deal of the release explaining how its 2022 performance will not match up to its prior 2019 numbers. Here is one example: “[United Airlines] Now expects full year 2022 capacity lower than 2019; previously planned capacity increases are delayed to later in 2022 due to Omicron.” This isn’t all:

“Expects first quarter 2022 capacity to be down 16% to 18% versus first quarter 2019.”

“Expects first quarter 2022 total operating revenue to be down 20% to 25% versus first quarter 2019.”

“Now expects full year 2022 capacity to be down versus 2019.”

As a result, now analysts don’t believe the company won’t become profitable until sometime in 2023. The average net earnings forecast is for -$1.42 in 2022, but $6.73 per share in 2023.

However, the revenue forecast is for $40.48 billion in 2022, up 64.5% from 2021 ($24.6 billion). But this $40.5 billion 2022 forecast is almost equal to the $42.3 billion from 2019 (down 4.3%).

That shows that the airline may not be in such a bad shape after all, especially if it can match the 2019 revenue figure.

UAL Is Too Cheap

The problem here is that the market is running scared about UAL stock. At its present market capitalization around just $13.5 billion, it trades for just one-third of analysts’ $40.5 billion 2022 revenue forecast.

That is akin to a price as if the company was still almost going out of business. Moreover, Morningstar reports that the average price-to-sales (P/S) multiple for UAL in the past five years was 0.62x. That is almost twice the 0.333x multiple as of March 23.

In other words, UAL stock is trading at a valuation that is almost 50% too cheap. Another way to put this is that just to reach a historical average, UAL stock should rise 87.9% (i.e., 0.62/0.33-1=0.879).

This implies that UAL stock is worth about $78 per share (i.e., 1.879 x $41.53).

What to Do With UAL Stock

Even if we were to be conservative and assume that it will take two years for the stock to rise almost 88%, the average annual return would be 37.07% annually for the next two years.

The proof of this is that if we take $41.53 and multiply it by 37.07% for each of two years in a row, the result will be $78.03 per share. So, being conservative, we can say that investors can expect UAL stock will rise to $56.93 by the end of this year or closely thereafter (i.e., 37.07% higher in year 1).

This is despite all the bad expected news for UAL. But if revenue really does move to over $40 billion this year, there is simply no way that its market capitalization can stay at $13.5 billion. That is just too cheap, despite all the ways that UAL will fall short of 2019 comparable stats.

Value investors know this. They like to invest in stocks like this as contrarians often do when everyone else is abandoning the ship. In the long run, as long as the company does not go out of business, the stock will tend to rise to its underlying inherent value.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.