In the early months of the COVID-19 pandemic, most investors avoided travel stocks, especially airlines. But as investor sentiment started to improve, so did the share prices of these companies.
For example, year-to-date (YTD), the and indexes are up more than 17% and 36% respectively. Since the beginning of the year, shares of American Airlines (NASDAQ :), Delta Air Lines (NYSE 🙂 and United Airlines (NASDAQ 🙂 have returned more than 61%, 25% and 44% respectively.
Across the Atlantic, airlines were also among the most traded stocks on the en indices. Today we're taking a look at FTSE 250 Member Wizz Air Holdings (LON 🙂 (OTC :). Over the past 12 months, WIZZ shares are up 141% and the YTD return is around 16%. On March 18, the shares closed at 5100p ($ 16.75 for US-resident shares).
Wizz Air Holdings Weekly Chart.
A low-cost airline serving niche markets
Hungary-based Wizz Air started in 2003 as a low-cost airline. Since then, it has focused on the relatively underserved Central and Eastern European markets.
Wizz Air flies to numerous cities in Europe, as well as some points in North Africa and the Middle East. Since its maiden flight in 2004, the airline has carried more than 200 million passengers in 44 countries.
The low-cost, no-frills system is based on direct booking through the website or app and paying for the extras that may be required.
Management is committed to developing a sustainable travel company that seeks ways to reduce its environmental footprint. This green element appeals to investors who pay attention to & # 39; Environmental, Social and Corporate Governance & # 39; (ESG) factors.
If we compare the annual report for 2020 and 2019, we see that Wizz Air has increased profits from £ 123 million (or $ 171.3 million) to £ 281 million (or $ 391.3 million). The company's annual report for 2021, covering operations through March 2021, will be published in the coming weeks. Understandably, the results from 2020 to 2021 will not be strong as significant losses are incurred for the fiscal year.
Bottom Line
In recent months, airline stocks have found a receptive audience, as evidenced by the rise in their stock prices. "Vaccinated will travel" is likely to become the buzzword in the coming months, with travel companies likely to see a solid pent-up demand once travel restrictions are lifted in many parts of the world.
Still, the markets are forward-looking. Therefore, at this current level, we would not buy shares of Wizz Air or other airlines. For WIZZ shares, a drop to 4,750p or even lower would improve the margin of safety for buy-and-hold investors. The forward P / E, P / S, and P / B ratios of 217.39, 4.87, and 5.36, respectively, indicate a frothy rating level. Recently, the shares were downgraded to "Hold" by HSBC (NYSE 🙂 with a target price of 4400p.
But once we get past the pandemic volatility, we are optimistic about the company's long-term outlook. With a market cap of £ 4.4 billion (or $ 6.1 billion), Wizz Air can still grow significantly. Once the pandemic is over, the company could be a takeover candidate, a potential development that would create significant shareholder value. Therefore, declines of about 5% -7% would represent an opportunity to buy into the shares of this low-cost airline, which has conquered a niche market in Europe.
Finally, investors who are interested in WIZZ stock but don't want to allocate capital to one company can consider purchasing an exchange-traded fund (ETF) that owns the stock. Examples are:
Schwab International Small-Cap Equity ETF â„¢ (NYSE :): 7.7% higher year on year;
SPDR Portfolio Europe (NYSE :): up 5.1% year on year;
U.S. Global Jets ETF (NYSE :): up 28.4% year on year.
