Why I’d stock up on battered Ryanair Holdings plc this week

Don’t you love to hate Ryanair Holdings plc (LON: RYA)? You shouldn’t, because the shares could net you some big profits.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The airline that everyone loves to hate has been big in the headlines this week. Ryanair Holdings (LSE: RYA) has admitted it has right royally screwed up its staff holidays and is having to cancel around 2,000 flights over the next six weeks. One might have thought that changing the firm’s holiday year-end and matching it up with maximum allowed flying hours for pilots was a problem not beyond the wit of a human equipped with a computer, but it proved too much of a task.

Anne Perkins of the Guardian went as far as to describe Ryanair as “much more than an airline – it’s a parable for our greedy times“, and I’m not without sympathy for her view.

So should we be dumping Ryanair shares now? Not a bit of it. In fact, I reckon we’re looking at a good time to buy. Cancellations have cost the company around £20m so far, and the total cost of the farce is still to be worked out.

But Ryanair air seems to thrive on bad publicity, and such a sum is small change for a company that is so strongly cash-generative — the year to March 2017 brought in approximately £1.15bn in pre-tax profits and left it with more than £1bn in cash on the books.

No Gerald Ratner

Despite the number of times negative press has resulted in opprobrium being heaped upon chief executive Michael O’Leary’s head, shareholders should love him. Here are a few more numbers that show why…

Ryanair shares have multiplied 3.6-fold over the past five years, to €16.80, driven by a trebling in earnings per share. Analysts expect that to continue, with EPS growth of 20% and 13% on the cards for this year and next putting Ryanair shares on a PEG of just 0.7 and a forward 2019 P/E of only 12 — both suggest a bargain valuation to me.

Mr O’Leary might not be someone you’d invite round for tea with the vicar, but he’s not doing a bad job of enriching his shareholders.

A better bargain?

Speaking of bargain airlines, I’ve been revisiting International Consolidated Airways Group (LSE: IAG) for the first time in a while, and I’m pleasantly surprised by what I see as an attractively low valuation. 

I’ve never been a great fan of the world’s major airlines, as I see them as being pretty much all the same and competing only on price. They’re hostages to fuel prices too — though right now, the oil market is being very kind to them. 

But in its past few years of recovery following its bad patch, International has been growing its earning nicely — EPS more than quadrupled between 2013 and 2016, and further growth is expected to add another 11% to that by December 2018.

Super cheap

While that’s been happening, the share price has been standing still. If you buy the 590p shares today, you’ll be locking in a forward P/E of only seven based on this year’s forecasts — and to put that into perspective, it’s only about half the FTSE 100‘s long-term average. Oh, and it drops to just 6.4 based on 2018 forecasts.

On top of that, there are dividend yields on the cards of 4% and better. 

The market may well be factoring-in fears of rising oil prices, but I think it’s overdone — and I really do see the shares as undervalued right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »