One growth stock and one turnaround that could double this year

Roland Head highlights two potential bargains in a high-flying sector of the market.

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Today I’m looking at a mid-cap growth stock that’s almost doubled over the last year. Can this performance continue?

I’ll share my view on this in a moment, but first I want to consider the latest news from a recovery stock I believe could have reached a turning point.

The cost of bad weather

Shares of UK regional airline Flybe Group (LSE: FLYB) rose slightly this morning, despite the company warning that the bad weather seen across the UK in February and March would cost the group around £4m in lost revenue.

In total, Flybe cancelled 994 flights during the first three months of 2018, compared to 372 last year.

However, bad weather and airport closures are beyond the airline’s control. What’s important is its operational performance. And today’s statement suggests to me that this is improving.

A turning point?

By early April, the group should have returned six end-of-lease aircraft to their owners, reducing its fleet size to 79. Trimming unpopular routes is also helping the airline to improve its overall load factor — the percentage of available seats that are filled.

During the three months to 31 March, Flybe’s load factor rose by 6.8% to 73.5%. As a result, passenger revenue per seat rose 9% to £50.84. Passenger numbers rose 3.7%, even though aircraft disposals reduced total seating capacity by 6%.

If this improvement can continue into the busy summer season, then the group could have a good chance of returning to profit during the current year.

Analysts’ consensus forecasts suggest a net profit of £1.5m and adjusted earnings of 3.2p per share for the current year. These projections put the stock on a modest forecast P/E of 10.

It’s also worth noting that infrastructure and aviation specialist Stobart Group recently considered making a bid for Flybe. No offer was made, but this episode suggests to me that Flybe could have value to a trade buyer.

In my view, this stock is worth considering as a recovery buy following today’s news.

A proven success story

Passengers don’t always enjoy flying with budget airlines, but their low ticket prices mean that seats are always full.

Central and Eastern Europe specialist Wizz Air Holdings (LSE: WIZZ) has an impressive 12-month load factor of 91.3%. This figure has risen by 1.5% over the last year, despite the airline increasing total seating capacity by 22.2% over the same period.

Unlike Flybe, Wizz Air has given investors clear proof of the profitability and growth potential of its business model.

A buy for growth?

The larger airline’s share price has risen by 91% over the last year, but still doesn’t look especially expensive to me. City forecasts suggest that the group will report earnings growth of 23% for the year, which ended on 31 March.

Earnings are expected to rise by another 20% during the current year, giving the stock a price/earnings-growth ratio of just 0.7. That’s well below the level of 1.0, which growth investors believe indicates a cheap stock.

Wizz Air’s forecast P/E of 13.7 for the current year also seems affordable to me. I believe this stock could deliver further gains. I’d rate the shares as a buy for growth investors.

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.

Roland Head 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.

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