Willis Lease Finance (WLFC) has been added to three Russell 2000 Defensive indexes, following its recent purchase of three Airbus A330-300 aircraft to lease to China Airlines and EVA Air.

For investors tracking momentum, Willis Lease Finance’s share price has eased 0.5% over the past day and 2.8% over the past week, but still shows a 64.6% year to date share price return and very large multi year total shareholder returns. This suggests sentiment has strengthened over time around its aircraft leasing growth and recent index inclusions.

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Bulls point to Willis Lease Finance’s strong multi year shareholder returns and index additions, while bears highlight the recent share price pullback and value score of 2. With these factors in mind, which side does the current valuation really support next?

Preferred P/E of 13.4x: Is it justified?

On a P/E of 13.4x, Willis Lease Finance is priced below both the wider US market on 19.2x and the US Trade Distributors industry on 23.4x, even after its strong share price performance.

The P/E multiple compares the current share price to earnings per share, so it effectively shows how much investors are paying for each dollar of Willis Lease Finance’s profits. For a business focused on aircraft and engine leasing, where earnings can be cyclical and balance sheets carry meaningful debt, the P/E gives a quick sense of how the market is weighing current profitability against those characteristics.

Here, the statements indicate that Willis Lease Finance’s earnings grew 16.4% over the past year, with high quality earnings and a 5 year earnings growth rate that has been very large. Yet the valuation multiple still sits below the market and industry averages. That combination suggests investors are paying less per dollar of earnings than they are for many peers, even as the business reports a 16.1% Return on Equity that is described as low and interest payments that are not well covered by earnings.

Compared with the US Trade Distributors industry P/E of 23.4x and the broader US market at 19.2x, Willis Lease Finance’s 13.4x stands out as meaningfully lower. If those peers maintain their higher multiples, there is a clear valuation gap between how this company and its sector are being priced.

Result: Price-to-earnings of 13.4x (ABOUT RIGHT)

However, Willis Lease Finance still faces risks from its low value score of 2 and interest costs that are described as not well covered by earnings.

Another View: Willis Lease Finance Through a Cash Flow Lens

While the P/E of 13.4x makes Willis Lease Finance look modestly priced against the market and industry, the SWS DCF model paints a very different picture, with the stock at $220.73 versus an estimated future cash flow value of $29.66. That gap suggests investors need to ask which signal they trust more.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Willis Lease Finance for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of optimism and concern around Willis Lease Finance has caught your attention, do not wait to review the data and decide where you stand. Start with the 2 key rewards and 1 important warning sign.

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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.