Typically, a new industry will start dozens if not hundreds of companies before consolidating over time. Although many industries tend to consolidate into just a few companies, those remaining firms will then start to compete with each other based on how they keep customers happy in a fully developed market.
Having a choice can ensure that quality doesn’t slip, and that businesses find ways to deliver better results at lower prices for their customers over time.
For instance, the US airline industry often has low fares to keep customers coming back. But there are other ways to compete as well.
Delta Air Lines (DAL) is adding free wi-fi services on their US flights starting next month. The company has spent over $1 billion on the efforts, but expects to see higher customer retention.
The airline is still coming back to pre-pandemic air travel levels, and revenues surged 52 percent last year. The company has just barely been profitable, however. But with more features designed to retain customers, it can compete against other domestic US airlines.
Action to take: Shares are still inexpensive thanks to high energy prices last year and economic uncertainty. At 7 times earnings, shares look undervalued and capable of moving higher from here.
For traders, the September $45 calls, last going for about $2.55, offer a mid-to-high double-digit return on a rally in shares in the coming months, which should get past the short-term uncertainties weighing on shares now.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.