An FTSE Member Airline Stock Suitable for Long Term Portfolios

This article was written in English on 19.03.2021, translated and published on this site.

In the first months after the COVID-19 outbreak, most investors moved away from travel stakes, mainly airlines. However, with the improvement in investor sentiment, the share prices of these companies have also recovered.

For example, the indexes and have risen over 17% and 36% respectively since the beginning of the year. American Airlines (NASDAQ:), Delta Air Lines (NYSE:) ve United Airlines (NASDAQ 🙂 stocks have gained 61%, 25% and 44% respectively since the beginning of the year.
On the other side of the Atlantic, it was also among the most traded shares in airlines and indices. Today, a name featured in the FTSE 250 Wizz Air HoldingsWe’ll take a closer look at (LON 🙂 (OTC :). WIZZ stock has risen 141% over the past 12 months and has generated a return of about 16% since the beginning of the year. Shares closed yesterday at 5,100 p. ($ 16.75 for US-based stocks).
Wizz Air Holdings Weekly Chart

Wizz Air Holdings Weekly Chart

A Cheap Airline Serving Niche Markets

Bulgaria-based Wizz Air started its operations in 2003 as an airline offering low prices. Since then, the company has focused on the relatively lower serviced central and eastern European markets.

Wizz Air also operates flights to many cities in Europe, as well as to some destinations in North Africa and the Middle East. Since its first voyage in 2004, the company has carried over 200 million passengers across 44 countries.

The company’s low-priced and basic services system is based on buying tickets directly from the website or application and making additional payments for additional services that may be needed.

The management aims to create a sustainable travel company that seeks to reduce its environmental footprint. This environmental element also attracts the attention of investors who attach importance to “Environmental, Social and Corporate Governance” (ESG) factors.

When we compare yearly for 2019 and 2020, we see that Wizz Air increased its profit from £ 123 million ($ 171.3 million) to £ 281 million ($ 391.3 million). The 2021 annual report, which will cover the company’s activities until March 2021, will be published in the coming weeks. Understandably, the results from 2020-2021 will not be as strong as in the past, with the impact of severe losses in the fiscal year.

Result

Airline stocks have found a sensitive audience in recent months, and the rise in stock prices is proof of this. “I’ve been vaccinated, I’ll travel” will probably be one of the most popular quotes in the coming months, and travel companies will see a cumulative boom in demand as travel restrictions are lifted in many parts of the world.

However, the markets are forward looking. So, we wouldn’t prefer to buy Wizz Air or other airline shares at these levels. For the WIZZ share, 4,750 p. or even lower will improve the margin of safety for long-term investors. The company’s forward price-earnings, price-sales and price-book value ratios are respectively 217.39, 4.87 and 5.36. This points to a high valuation. Recently, HSBC (NYSE 🙂 lowered its rating to “Hold” for the share and set a price target of 4,400p.

However, after overcoming the epidemic volatility, we have high expectations for the long-term line of the company. With a market value of £ 4.4 billion ($ 6.1 billion), Wizz Air still has significant growth opportunities. With the pandemic over, the company could become a buying target, a development that would create significant value for shareholders. Hence, a 5-7% decline would mean an opportunity to buy shares in this airline company that has created a niche market for itself in Europe.

Finally, investors who are interested in WIZZ shares but do not want to invest all their capital in a single company may consider acquiring an exchange-traded fund (ETF) that includes that share. Some examples:

  • Schwab International Small-Cap Equity ETF™ (NYSE :): + 7.7% since the beginning of the year;
  • SPDR Portfolio Europe (NYSE :): + 5.1% since the beginning of the year;
  • US Global Jets ETF (NYSE :): + 28.4% since the beginning of the year.

Note: If you are interested in the financial products mentioned above but cannot find these products in your area, you may want to contact your brokerage firm or financial planner.

You can contact me for any questions or comments.

Editor’s Note: Not all assets analyzed may not be available in all regional markets. Please contact an authorized brokerage firm or financial advisor to find similar financial instruments that may suit you. This content is for informational purposes only. Before making any investment decision, you should do your own detailed research.

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