Delta stock: You might want to bail out of this one

— -- A: If you had to choose which industry is facing the toughest challenge in today's economy, airlines would be on the short list.

With fuel prices soaring, one of the airlines' biggest costs is out of their control. Meanwhile, nervous consumers are cutting back on non-essential expenses, which include weekend hops to Las Vegas and other elective trips.

You don't need to look much further than the airlines' stocks to see the destruction. Shares of Delta are down about 55% this year so far, chewing up the equity of investors who were betting on the industry recovering late last year. And it sounds like you're among those suffering.

Should you hit the eject button? To find out, let's put Delta through the four tests we consider:

Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Generally, you would download a stock's trading history going as far back as possible. But, this analysis is difficult with Delta because the company's trading history is short, going back to just 2007, when the company emerged from bankruptcy protection. So trading history before that point is not meaningful. We need to skip to step 2.

Step 2: Measure the stock's discounted cash flow. Some investors decide if a stock is pricey by comparing its current price to the present value of its expected cash flows. It's a complicated analysis made simple with a system from NewConstructs. When we run Delta's stock, we find there's no rating on the stock because its financials are too recent to have been processed by the service.

Transparent Value, a website that figures out what business milestones a company must meet to justify its stock price, gives us additional information. It says Delta has a 92% chance of hitting the financial targets it needs to justify its current price. That's the first piece of good news we've gotten from the analysis. But we need more information.

Step 3: Compare the stock's current valuation to its historical range. BetterInvesting's Stock Selection Guide can help. If the company can increase earnings 13% a year the next five years, half of what analysts are expecting, that would put the stock in the "buy" range. That's a green light for investors who believe the price-to-earnings ratio will return to historical norms. But that's a giant assumption, because the industry is facing never-before-seen strains that are unlikely to ease in the short term. It may be a bit too lenient to say historical valuations may apply again. To be conservative, I cut analysts' forecasts in half. But perhaps I'm not being conservative enough.

Step 4: Check the company's financial health. Before investing in any company, you want to make sure it's in good financial shape. A quick way to check is to look at where it falls on the USA TODAY Stock Meter, which ranks stocks from conservative (1) to aggressive (5). No surprise: Delta scores an aggressive 4.2 here. You can get a Stock Meter score for almost any stock by going to money.usatoday.com and putting the stock's ticker symbol or name into the Get a Quote box.