Just as planes take off and land, stocks divide Spirit Airlines (TO RESCUE -18.18%) have given the shareholders a ride. Only in this case there was ridiculous turbulence during the journey.

The company has made a terrible investment. This airline stock is currently trading 98% below its all-time high, a milestone reached almost a decade ago. At these depressed levels, is it time to buy Spirit Airlines?

Up and down

Things briefly changed course recently. From October 18 to November 11, shares of the troubled airline soared 131% higher. The company initially breathed a sigh of relief when it said it was able to secure an extension with bondholders to refinance its debt.

Earlier this year, Spirit Airlines’ planned merger with… JetBlue Airways was canceled by a federal judge over concerns that it would have reduced competition at the bottom end of the airline industry. The stock plummeted after the announcement.

There was hope that a new deal would be reached in the worksadding to the recent short-lived rebound in Spirit stock. The company was recently in discussions with Border group about a possible merger. But the discussions failed.

This puts Spirit Airlines in a precarious situation. The company is expected to file an application bankruptcy protection in the not too distant future. It also revealed that it will not be able to file its Q3 2024 10-Q on time.

Value trap

Investors may have been encouraged by the market’s renewed optimism toward Spirit Airlines, but that has faded. I think it’s still extremely difficult to be optimistic about the company or the stock, even though the stock is trading dirt cheap price-to-sales multiple of 0.03. I think this is A classic value trap. But that valuation shows how much the market has soured on Spirit’s prospects.

The challenges are hard to ignore. For starters, the company is struggling to grow its revenue. Revenue was less than $1.3 billion in the second quarter (ended June 30), down 10.6% year over year. This was the fourth consecutive quarter of year-over-year sales decline.

“Significant industry capacity increases along with additional price changes” were cited by the management team as key factors putting pressure on sales. Spirit’s strategy is to charge travelers for various non-fare-related items, such as seat selection, baggage or food and drinks. But the competitive nature of the industry has forced the company to cut prices here.

Over the past six months, Spirit Airlines posted $359.8 million in cumulative operating losses. This is not a new development. The company hasn’t even reported any positive numbers operating income for a full year since 2019. That is a very disturbing trend that clearly highlights the company’s financial problems.

In the aviation sector, Spirit’s sales are falling and operating losses are noticeable. The four largest airlines, Delta, American, UnitedAnd Southwestall reported an increase in sales and positive operating income in their latest respective quarters.

The balance also leaves a lot to be desired. As of June 30, Spirit Airlines had a heartbreaking long-term debt of $3.3 billion, which is more than twenty times its current market capitalization. Given the company’s difficulties in achieving profitability, debtors are rightly concerned about Spirit’s ability to pay its obligations.

Perhaps a partnership with Frontier, had it been successful and continued, would have created a new and improved airline with a much better financial situation and a much better growth trajectory. But this is no longer on the table. And possible future merger discussions with other candidates are difficult to predict in advance. As a result, investors should stay far away from this troubled stock, no matter how cheap it is right now.