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Wizz Air’s (LSE: WIZZ) share price has dropped 30% from its 18 March traded high of £18.17. I think it is set not only to recover this loss but to make significant gains on top as well. The driving factor behind this – and for any firm’s share price – will be earnings growth.
There are risks here, as with all firms, of course. The main one is any further delay in returning to its full complement of aircraft following groundings due to engine troubles. As at the time of its Q1 2025/26 results release (24 July), 41 were still non-operational. The firm at that point said that they would not return to service until 2027.
However, it announced on 1 September that it is working on a deal with engine-maker Pratt & Whitney to expedite that timeframe.
That said, even with the original 2027 return date in place, analysts forecast the airline’s earnings will grow by a very strong 17.3% annually to end-fiscal year 2027/28.
Upgraded after results
This optimism was reflected by an upgrade for Wizz Air stock by Barclays the day after the Q1 results. The banking giant cited a “far brighter future” for the airline based on its strong position in the Central and Eastern European market. Indeed, the new rating of Overweight underlines that it expects the stock to outperform its sector.
Aside from the news on the still-grounded aircraft, there were several positive factors in those Q1 numbers. Most notable for me was the 9.3% year-on-year increase in earnings before interest, taxes, depreciation, and amortisation to €300.2m (£259.75m). Revenue also rose significantly – by 13.4% year on year to €1.428bn.
Drilling further down into the headline numbers, revenue per available seat kilometre (RASK) edged up 2.1% — to €4.41. RASK indicates how much revenue an airline makes for each seat it offers, per kilometre flown.
Over the same period, net debt dropped by 5.1% to €4.705bn, while total cash rose 13.2% to €1.965bn.
Share price specifics
Price is whatever the market will pay for a share while value reflects the true worth of the underlying business.
Correctly identifying and quantifying this price-valuation gap is the key to big long-term profits, in my experience.
And the best way I have found to do this is through the discounted cash flow (DCF) model. This pinpoints where any stock should be priced, derived from cash flow forecasts for the underlying business.
In Wizz Air’s case, the DCF shows its shares are a whopping 74% undervalued at their current £12.69 price.
Therefore, their fair value is £48.81.
Will I buy the shares?
I think airline stocks are at the riskier end of stock investments. The sector is subject to the impact of diseases, wars, and energy prices more than many others.
Aged over 50 now, I am at the later stage of the investment cycle. This means I cannot afford to take the same risks as I did when I was younger. That is because I have less time available to wait for stocks to recover from price shocks.
Therefore, Wizz Air is not for me.
However, I think it is well worth considering by investors who have a greater risk appetite than I.
