In the current market session, Southwest Airlines Inc. LUV is trading at $29.20, after a 0.34% rise. However, over the past month, the stock decreased by 18.03%, and in the past year, by 45.84%. Shareholders might be interested in knowing whether the stock is undervalued, even if the company is performing up to par in the current session.

The stock is currently higher from its 52 week low by 1.39%. Assuming that all other factors are held constant, this could present itself as an opportunity for investors trying to diversify their portfolio with Airlines stocks, and capitalize on the lower share price observed over the year.

The P/E ratio measures the current share price to the company's EPS. It is used by long-term investors to analyze the company’s current performance against its past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also shows that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future.

Most often, an industry will prevail in a particular phase of a business cycle, than other industries.

Compared to the aggregate P/E ratio of 6.05 in the airlines industry, Southwest Airlines has a higher P/E ratio of 6.82. Shareholders might be inclined to think that Southwest Airlines Inc. might perform better than its industry group. It’s also possible that the stock is overvalued.

price to earnings ratio is not always a great indicator of the company's performance. Depending on the earnings makeup of a company, investors may be unable to attain key insights from trailing earnings.