Its fortunes changed when news emerged late last week that Russia had invaded Ukraine. The market’s response led to a 6.3% drop in the price on Thursday.

However, with the stock currently changing hands at around 148p — a slither of the 400p price we saw pre-pandemic — is now a good time for me to be adding IAG shares to my portfolio? Let’s take a look.

The reopening of borders

A major boost for IAG will be the recent reopening of borders around the world. As more and more countries have eased the restrictions placed on international passengers, this should allow the firm to see an increase in passengers over the coming months. Further, some countries have lifted restrictions altogether, for instance, Sweden and Spain. And the benefits they reap from doing so may entice other countries to follow suit. According to the International Air Transport Association, around 3.4bn people will fly in 2022 – nearly double that of 2020. As such, this makes me believe buying IAG shares at the current price could be a steal.

Further, and as my colleague Andrew Woods stated, IAG may benefit more than competitors when it comes to the increased travel we should begin to see. This is because, unlike EasyJet and Wizz Air that focus on short-haul flights, IAG also operates transatlantic routes – estimated to be worth $1bn annually to the firm.

IAG also released its full-year results last week. And the numbers were encouraging. While revenues were up 8.3%, its post-tax loss had declined by 57.7%. When considering buying the shares, these numbers do sway me.

The risks

There are risks, however. The most obvious threat to IAG remains the pandemic. While it seems that the worst of it is over, there’s still potential for it to cause disruption in the future. Any sign of this would most definitely mean a drop in the price of IAG shares. With this said, Boris Johnson recently announced that the legal requirement to self-isolate due to a positive case has ended, showing further how the UK is taking strides to move away from the pandemic. This will provide a boost for the business.

My verdict

So, while a threat linked to the pandemic remains, I’m optimistic about what the future holds for IAG. The firm will see big benefits from the increase in passenger volume this year, and trading for well below half of the pre-pandemic levels I think IAG could be a solid buy. Its full-year results also provide me with confidence. As such, I would be willing to add IAG shares to my portfolio today.

The post Should I be adding IAG shares to my portfolio? appeared first on The Twelfth Magpie.

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• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Q1 take-off

Well, the latest trading update would certainly suggest so. For the three months to June 30, passengers carried rose to near 3m, a 317% increase from the same period last year. Revenues also rose by 120% to €199m. Considering the firm was only operating on a third of its usual capacity, these results are impressive. If the firm continues with a performance like this, I expect a continuation in the Wizz Air share price rise.

Within the statement, it was also mentioned how capacity in July and August was expected to be 90% and 100% of 2019 levels, respectively. These figures won’t be confirmed until the next update. But if it reached its goal, I’d expect a further rise in the stock price. This makes me wonder whether now is a good time for me is to buy ahead of any potential share price growth.

Wizz Air problems

Yet, with all the positives above, why have we seen a stagnation in the Wizz Air share price since the release of the results?

Firstly, some issues remained in Q1. Although I was keen to mention a rise in revenues, I must also note that the three-month period saw losses of €114.4m – an increase from the €108m loss of the 2020 period. This is clearly not good news and only further highlights the unflattering effects of the pandemic.

Another reason why the stock has stalled may be due to future uncertainty surrounding capacity. Although the firm expected to match 2019 levels by August, making it the first European airline to recover to pre-pandemic levels, there is no guarantee this will last. The stock evidently expected a busy summer as eager travellers rushed to get away. But what will the next few months hold in store? We’re aware of the negative impact the winter period can have on coronavirus cases, and this is reflected through the firm’s caution on future predictions. This could present a major issue for the share price.

Will the price continue to fly?

The latest results clearly show that the business is on its way to recovery as seen by its year-to-date rise. What does worry me, however, is what the short term may hold for the firm. As much as the aviation industry has recovered, fundamentally it remains fragile. Should Wizz Air manage to weather the next few months, I think a clear runway will present itself for the price to take off. And while I think that long term, the stock will increase in price, the next few months have the potential to be volatile. With this said, I would still buy this FTSE 250 stock for my portfolio today.

The post This FTSE 250 stock is up 35% in the past year. Can it continue? appeared first on The Twelfth Magpie.

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• Why did Wizz Air shares just jump 10%?

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Let’s take a look at the most important numbers from yesterday’s statement.

Flying high

The number of passengers carried by Wizz — the largest low-cost airline in Central and Eastern Europe — soared by a little over 23% to 10 million over the last three months of 2019. 

Revenue also rose a stellar 24.6% to €637.3m. Broken down, ticket sales climbed 15.5% to €336.3m and ancillary revenue — that is, cash generated from baggage fees and on-board food and services — increased a stonking 36.7% to €301.1m. 

Profit came in at a record €21.4m, compared to a loss of €21m over the same period in 2018 thanks in part to a reduction in costs that was ahead of expectations. 

The outlook was also positive. Having taken the decision to prioritise reinvestment back into the business, CEO József Váradi believes that Wizz “will grow even faster in the fourth quarter”, so much so that the company saw fit to raise its guidance on full-year net profit from between €335m and €350m to a range of €350m to €355m.

As updates go, it’s hard to find fault with any of the above.

So, it’s worth buying the shares?

Not necessarily. Let’s look at a few reasons why new investors might wish to hold off taking a position. 

Wizz Air’s stock was trading on almost 18 times forecast earnings before the announcement. While clearly not as dear as some other members of the market’s second tier, that’s arguably not cheap for any business in a notoriously cyclical industry.

It is, for example, more expensive than Luton-based rival easyJet, which still trades on a less-demanding P/E of 14, despite its shares having bounced over 60% in value since last summer. 

With its 3.6% forecast yield (based on a 51.3p per share return in FY20), it’s also worth mentioning that FTSE 100 constituent easyJet is the natural choice for income investors. Wizz, in sharp contrast, elects not to return any profits to its owners.

Regardless of valuation or income prospects, one also needs to consider the impact on airlines in general if (and it’s a big ‘if’) China is unable to contain the coronavirus outbreak that has already killed 132 people and resulted some parts of the country being placed in lockdown. Should this come to pass, you can expect markets to take a negative view on all operators in the short term, regardless of whether they fly in affected regions or not.

On the bull side, it might be argued that yesterday’s numbers, combined with the company’s growth strategy could mean the shares continue their positive momentum over the medium-to-long term.

The £3bn cap is, after all, aiming to launch its first airline outside of Europe — Wizz Air Abu Dhabi — in the second half of 2020. What’s more, Wizz posts higher returns on capital and higher operating margins than easyJet and remains in excellent financial health with total cash of €1.5bn at the end of 2019.

Based purely on the business (and not taking into account any turbulence caused by external factors), I continue to think Wizz is worthy of investment, albeit as part of a fully-diversified portfolio.

The post This FTSE 250 growth stock has just reported record profits. Time to buy? appeared first on The Twelfth Magpie.

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• Why did Wizz Air shares just jump 10%?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Companies are now facing another severe threat in the form of climate change. As the world tries to get to grips with its hydrocarbon addiction, the airline industry is firmly in the sights of climate activists and policymakers who want the sector to clean up its act.

It’s difficult for legacy carriers such as British Airways owner IAG to adapt to rising fuel costs, falling ticket prices and demands for more fuel efficiency. However, for smaller, newer and nimbler competitors such as Wizz Air (LSE: WIZZ), the opportunity is there for the taking.

Surging growth

Wizz was incorporated in 2009 and, after a slow start, during the past six years the business has taken off. Net profit has grown at a compound annual rate of 27% as revenue has expanded at 18% per annum on average.

Wizz’s low-cost offering is why it’s so popular with customers. During the three months to the end of June (Wizz’s fiscal first quarter), the average ticket price was just €36.60. Where the company makes its money is selling ancillary services to customers. Costs such as food and drink on the flight and excess baggage charges amounted to €30.10 per passenger during Q1.

In fact, the company now makes nearly as much money from these services as it does from tickets. Baggage fees were €5.49 per passenger.

These extra costs don’t seem to have hurt the airline’s growth. Indeed, having flown with the airline last month, I can confirm the company provides a relatively good service providing you don’t want to take on extra baggage or change flight details at the last moment.

Growth continues

Even if customers are put off by Wizz’s extra charges, this isn’t showing through in the firm’s growth figures. According to the company’s September traffic update, passenger numbers grew by 20% year-on-year during the month and the load factor hit 94.5%.

What’s even more impressive is the business claims to operate with the lowest CO2 emissions per passenger/km among all competitor airlines. CO2 emissions per passenger fell 3.6% to 56.9 grams in September thanks to the higher load factor. This number should fall further as the company progresses with its plan to upgrade its entire fleet to more fuel-efficient planes during the next few years.

The bottom line

Over the past 10 years, Wizz has proven it has a successful business model that can be scaled up effectively. There are no plans to slow down any time soon. Earlier this year, the firm put an order in for 50 of the new Airbus A321XLR long-range aircraft to help it expand its network to more destinations.

Wizz has doubled net profit over the past five years and, as the company continues to expand, I think it could do so again over the next five.

Analysts are already forecasting earnings growth of around 44% over the next two years. And its fleet expected to expand by 42% over the next five years, it’s not difficult to see profits growing by more than 100% from current levels. If they do, I reckon the stock could double from current levels.

The post I think this FTSE 250 growth stock could double your money appeared first on The Twelfth Magpie.

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• Why did Wizz Air shares just jump 10%?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Thanks to an increase in capacity, a total of 26.4m people flew with the airline over the three months to the end of June (up by 2m), leading to a 10.7% rise in passenger revenue to £1.39bn. The company’s load factor — the percentage of available seats filled — declined slightly to 91.7%, however, due to high prior-year comparatives resulting from the bankruptcy of Monarch and industrial action in France.

Taking into account the 14.3% rise in ancillary revenue (baggage fees and on-board food and services), total revenue came in at £1.76bn in the three months — 11.4% more than over the same period in 2018.

In addition to higher revenue, easyJet’s focus on “operational resilience” seems to be paying off. Its headline cost per seat, excluding fuel, fell 4% at constant currency following significantly-reduced cancellations and delays. No wonder CEO Johan Lundgren was keen to describe the company’s performance over the period as “robust”. 

With 78% of seats in the second half of its financial year now sold, easyJet predicts headline pre-tax profit for the 12 months will come in between £400m and £440m, in line with market expectations. 

In light of this news and following a bounce in the share price over the last month, does it make sense to question whether an immediate return to the market’s top tier might be on the cards for the business? I think that’s a tough one to call. 

Bothersome Brexit 

The last 12 months have not been fun for easyJet’s investors. Even after today’s gain, the stock is still down 40% from the highs reached in June 2018. Nevertheless, with a market-cap still above £4bn, it won’t take much for the company to flirt with the possibility of re-entering the FTSE 100 sooner rather than later, especially if investors see value in the shares.

Before markets opened this morning, the flyer’s stock was trading on a little over 12 times expected earnings — slightly lower than its five-year average of 13.1. This valuation also compares favourably to listed peers Ryanair (14) and Wizz Air (15).

In addition to its lower valuation, easyJet remains the logical choice for those looking to generate income from their portfolios. A predicted cash return of 43.9p per share in the current financial year, covered almost twice by profits, gives a yield of 4.2%. Neither of its rivals pays dividends.

Taking this on board, along with its strong branding and solid finances, I think easyJet could certainly attract interest from market participants in the event of the new Prime Minister reaching what the airline industry considers an ‘acceptable’ conclusion as far as Brexit is concerned.

Whether it’s worth taking a gamble on this happening now given the high chance of further turbulence over the rest of 2019, however, is open to debate. If I were to buy today, I’d certainly be checking my portfolio was suitably diversified — by geography and sector — before pulling the trigger.

If no compromise is reached on our EU departure then easyJet will surely remain in the FTSE 250 for the foreseeable future.

The post Could easyJet fly back into the FTSE 100? appeared first on The Twelfth Magpie.

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• easyJet shares are up 40% in a month. Here’s why
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• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I believe Thomas Cook shares are likely to end up at zero, as I explained in a recent in-depth article here at the Motley Fool. For this reason, I won’t be going anywhere near TCG stock.

The good news is that for investors with an interest in this sector, I think there are some better opportunities elsewhere.

A winning choice?

One of the most successful stock market flotations of recent years has been budget airline Wizz Air Holdings (LSE: WIZZ). Shares in this flyer, which focuses on central and Eastern Europe, have risen by about 170% since the WIZZ IPO in March 2015.

However, recent comments from Western European budget airlines such as Ryanair and easyJet suggest short-haul operators may be starting to suffer from over-capacity on popular routes. This appears to be pushing down ticket prices and putting pressure on profits.

So far, there seems to be less evidence of this in eastern and central Europe, at least not at Wizz. The airline’s latest results showed a 2.3% increase in average revenue per seat, which helped to offset higher fuel costs. By contrast, easyJet reported a 6.3% fall in revenue per seat in its recent half-year results, despite rising costs.

My view: Wizz Air expects earnings per share to rise by about 15% this year. The airline’s load factor — the percentage of seats sold on each flight — is also improving. This key figure has risen by 1.6% to 93.2% over the last year, which I see as an encouraging performance.  I’m not sure that Wizz Air is a bargain at current levels. But I expect this firm to remain successful and believe it could be a good long-term hold.

A better choice?

One company I rate very highly in the leisure travel sector is AIM-listed Dart Group (LSE: DTG). This £1.25bn firm operates the Jet2 holiday business and airline. It’s also the owner of the Fowler Welch logistics business.

Figures released today show the company generated earnings of 98p per share for the year ended 31 March 2019, beating market forecasts for 95.1p per share.

These figures reflect a bumper year for the group. Pre-tax profit rose by 36% to £177.5m, while sales were 32% higher at £3,143.1m. Strong demand for Jet2 package holidays helped to support a good performance from the airline business.

What I’d do now

Given the cautious outlook reported by other airlines, Dart’s views on the year ahead are arguably more important than Thursday’s results.

The company says sales are still strong, but bookings are being made later than last year. This means pricing has to be “continually enticing.”

The company says it’s “optimistic” forecasts for the 2019/20 year will be met. This sounds hopeful to me, rather than confident, especially as analysts are already forecasting a 15% fall in earnings for the current year.

Despite this, I think DTG shares could turn out to be reasonably priced at current levels. Trading on 10 times 2019/20 forecast earnings, they don’t seem overly expensive to me. I might consider opening a starter position in Dart at current levels, with a view to buying more shares at a lower price when the opportunity presents.

The post Thomas Cook shares? I’d rather buy this FTSE 250 dividend growth stock appeared first on The Twelfth Magpie.

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• Why did Wizz Air shares just jump 10%?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Over the past 15 years, this company has smashed all expectations and as the business has gone from strength to strength, shareholders have been well rewarded.

Indeed, over the past 15 years, the stock has produced an annualised return of 19.4%, turning every £10,000 invested in the business into £142,910. There’s only a handful of other firms that have produced the same kinds of returns for investors during this period. 

A small setback

Unfortunately, after the stock peaked at 375p in August 2016, Domino’s investors have been left wanting. At the time of writing, the stock is nearly 40% below this all-time high.

Several things have gone wrong for the company over the past three years. For a start, it has fallen out with several franchisees, who are concerned about the group’s rate of expansion and the impact it will have on their profits. Franchisees also want more help from the parent business to help cover rising costs. On top of this, the company’s international expansion is not going to plan. Management wanted this part of the business to break even in 2019, but weak sales growth means yet another year of losses.

Still, despite these factors, the underlying business continues to expand. UK sales increased by 3.1% on a like-for-like basis in the 13 weeks to the end of March. If this trend continues, analysts have pencilled in earnings growth of 5.8% for the year as a whole, below the five-year average of 19%, but impressive considering the headwinds the group is facing.

And based on these forecasts, shares in the fast food group are dealing at a forward P/E of just 14, the lowest valuation in five years, which looks too good to pass up in my opinion. Historically, the company has commanded a valuation of 30 times earnings, implying that when franchisee relations settle down, the stock could double from current levels.

Cash is king

The second FTSE 250 growth champion I think has the potential to double investors’ money again is Wizz Air (LSE: WIZZ).

Shareholders who bought into the low-cost airline’s growth story shortly after its IPO in the summer of 2016, have already seen a return of more than 100%, and with City analysts expecting earnings growth to average nearly 20% per annum for the next two years, I think there’s a good chance the shares could double again from current levels.

Based on current City forecasts, the stock is trading at a 2021 PEG ratio of 0.4, and if you strip out cash, the valuation becomes even more attractive. At the end of its 2019 financial year, the company had a net cash balance of £1.2bn, which is around half of its £2.4bn market capitalisation at the time of writing.

Based on analysts’ current projections, the shares are dealing at a 2021 P/E of 11.1, Wizz’s colossal cash balance suggests its cash-adjusted valuation could be around half of that, which suggests there could be a potential upside of nearly 100% for the stock from current levels when compared to the sector average of P/E of 10.1. 

The post These two FTSE 250 stocks have doubled investors’ money. I think they will again appeared first on The Twelfth Magpie.

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• Why did Wizz Air shares just jump 10%?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Domino's Pizza and Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Budget carrier easyJet (LSE: EZJ) has been hit hard by a perfect storm of strong competition for flyers’ money, a rise in the price of oil, and the obligatory Brexit-related uncertainty. Isolated incidents, such as the problems caused by a drone at Gatwick back in December have only added to investors’ concerns and hit the share price.

Having halved in value since last May, the business is now likely to be removed from the FTSE 100 when the outcome of the index’s quarterly reshuffle is officially confirmed next week. Fellow struggler Marks & Spencer will surely join the airline in being demoted to the FTSE 250. 

Given that many index trackers committed to following the FTSE 100 will automatically be selling their positions in the company following its demotion, this has the potential to drag the share price even lower.

But, of course, those investing with the Foolish philosophy of buying quality companies for the long term shouldn’t necessarily let this put them off grabbing a slice of easyJet… eventually. After all, the shares could rocket if our EU departure were to be spectacularly cancelled later down the line.  

The question is, if you were committed to buying stock in a budget airline, should it be easyJet or perhaps rival Wizz Air (LSE: WIZZ)?

The latter’s share price, while not immune to volatility over the last six months, has actually gone in the opposite direction.

“Very optimistic”

Releasing full-year figures to the market this morning, the largest operator in Central and Eastern Europe reported a 16.7% rise in passenger numbers to a record 34.6m in the 12 months to the end of March.

In addition to this, revenue jumped by almost 20% to €2.32bn and net profit increased 6% to €292m — quite a result when you consider the ongoing problems within the industry. It’s also a world away from the half-year £272m pre-tax loss recently reported by easyJet.

Focusing on FY2020, CEO József Váradi said the company remained “very optimistic“, believing higher fuel prices would hit smaller airlines and allow Wizz to increase market share.

The company is now predicting a 17% rise in passenger numbers to 40m and net profit in the range of €320m-€350m. Understandably, however, Wizz did caution that it only has “limited visibility” on this.  

Indeed, with ongoing air traffic control issues likely to continue, the mid-cap “anticipates another very challenging operating environment in FY20” — a comment which may go some way to explaining why shares were over 5% down in early trading.

I’ve been bullish on Wizz for some time now, even if a lack of dividends means it won’t be one for income investors.

At 13 times forecast earnings, the stock is more expensive than easyJet (10) and Ryanair (12), but today’s numbers arguably help justify this premium. Its balance sheet is strong(er) with cash of €1.32bn on the books at the end of March — a 34% improvement on 2017/18.

I suspect cyclical stocks like airlines are likely to experience further volatility going forward, at least until the situation surrounding Brexit is clarified once and for all. Notwithstanding, I’m confident Wizz’s shares will fly higher in time.

The post easyJet is about to depart the FTSE 100. Is this rival a better buy? appeared first on The Twelfth Magpie.

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• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Although the company is experiencing a challenging period at the present time, it could be worth buying alongside a sector peer which reported a positive trading update on Tuesday.

Growth potential

The company in question is Central and Eastern European-focused budget airline Wizz Air (LSE: WIZZ). Its trading update for the fourth quarter of its 2019 financial year showed that it performed in line with expectations. Demand has remained robust, with load factors up by 2.6 percentage points to 94.1%.

In the new financial year, revenue per available seat per kilometre is forecast to rise by 4%. Its revenue performance is due to be boosted by strength in the company’s ancillary revenues, while cost discipline remains a key consideration for the business.

Although Wizz Air and its peers face an uncertain future due in part to weak consumer confidence, the company is still expected to post a rise in net profit of 21% in the current financial year. Since it trades on a price-to-earnings growth (PEG) ratio of 0.6, it appears to offer good value for money at the present time. While its shares could prove to be somewhat volatile over the near term, they may deliver impressive capital growth in the long run.

Uncertain outlook?

As mentioned, the prospects for easyJet and the wider European airline sector continue to be uncertain. As the company’s update released this week showed, consumer demand in the UK and in mainland Europe has been weak, with this situation expected to remain in place over the near term. As such, there are continued risks facing the business at a time when fuel costs have also risen in recent months.

Of course, the airline industry is, by its very nature, highly cyclical. There is an ebb and flow to demand, with capacity changes being the end result of this as smaller, less financially strong competitors go under. This situation appears to be in progress at the present time, with easyJet’s strong balance sheet and low cost base putting it in a good position to increase market share over the medium term.

In the current year, the company is forecast to post a rise in net profit of 18%, while a PEG ratio of 0.6 suggests that it offers a wide margin of safety. Although uncertainty is high at the present time, and it would be unsurprising for its shares to come under pressure, in the long run, the stock may be able to generate impressive growth relative to its sector peers.

The post Forget the National Lottery. I think the easyJet share price may be a better way to get rich appeared first on The Twelfth Magpie.

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• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Peter Stephens owns shares of easyJet. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Having lost 30% of its value over the last 12 months, does the stock now represent great value? I’m still not convinced. 

Low fare environment

To be fair, the update wasn’t devoid of positives. The number of passengers carried by the firm rose by 8% in the three months to the end of December to 32.7 million. Revenue also climbed 9% to €1.53bn, supported by customer demand for extras such as priority boarding and reserved seating. 

Nevertheless, the firm was hit by a combination of more expensive fuel prices, staff costs and a 6% fall in average fares to below €30 as the airline continues to compete against rivals for travellers’ cash.

Despite this, Ryanair was keen to stress that it had the lowest unit costs of all airlines operating in the EU and that “this gap is widening“. The £11bn cap went on to announce a change in structure with each of its four subsidiaries (including the loss-making Laudamotion) gaining their own CEOs and management teams. Michael O’Leary will now take up the position of Group CEO and has agreed to stay with the company until “at least July 2024“.

None of this, it would seem, was sufficient to soothe investors’ concerns over the possibility of further hits to earnings (and the share price).

Back in January, Ryanair announced that profits would be between €1bn and €1.1bn. Today, however, it stated that it could not dismiss the possibility of further reductions in air fares, particularly if lower oil prices allow flagging competitors to continue operating. As a consequence, full-year profits could come in even lower, even more so in the event of any security incidents or “unexpected” developments on Brexit.

As far as the latter is concerned, Ryanair said that it had taken “all necessary steps” to protect itself in the event of a no-deal outcome but hopes that “common sense will prevail“.

Cash rich

While it’s vital to look beyond the most recent set of numbers before making an investment decision, today’s news does little to change my view that Ryanair looks less enticing as an investment compared to its listed competitors.

Rival easyJet is the clear option for those looking to generate an income from their investments (since it’s the only one that pays a dividend) but peer Wizz Air (LSE: WIZZ) — which reported a 10% rise in passenger numbers today — would be my pick for more growth-focused market participants.

Priced at 15 times earnings, Wizz may be more expensive to buy than Ryanair (P/E of 12) but a predicted 21.5% EPS rise in 2019/20 brings the former down to a little less than 13. Perhaps more importantly, a PEG ratio of just 0.54 suggests investors will be getting a lot of bang for their buck.

But there are other attractions. Returns on capital are far higher on average at the Geneva-based business (27% vs 14%). It also possesses a huge amount of cash on its balance sheet, while Ryanair had a net debt position of €1.5bn at the end of Q3 thanks to ongoing investment. At a time of high economic uncertainty, Wizz’s financial standing is surely preferable.

Should there be further turbulence ahead, I may just take advantage. 

The post Tempted by the Ryanair share price? I’d buy this FTSE 250 growth stock instead appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.