Low-cost airline Ryanair (LSE: RYA) has bounced back quite well from the pandemic drag. The Ryanair share price has far surpassed the pre-market crash levels of last year, not something that can be said about all coronavirus-impacted stocks. Moreover, on average in 2021, it is close to three-year highs.
This is impressive. And a look at its guidance for the year ending March 31, 2021 (FY21), updated last week, reveals why the Ryanair share price has been flying high.
Positive guidance
One, it has lowered its guidance for net loss to €800m-€850m from the earlier one of €850m-€950m. In other words, it now expects the loss to be 5%-10% less than its previous forecast.
Two, leading credit rating agencies S&P and Fitch have given Ryanair a healthy BBB rating. In its November update, Fitch says “We…expect RYA’s recovery to be faster than that of the sector…due to the company’s low-cost position, short-haul flights and favourable customer base”.
It also talks about Ryanair’s liquidity levels. The company is sitting on a cash pile of €3.15bn at the end of FY21, which has clearly held it in good stead.
Three, while withholding any profit guidance for next year, Ryanair refers to analysts’ forecasts that project that it will be close to breakeven. This would represent an appreciable recovery from the current losses.
Four, besides Ryanair’s guidance, I reckon low-cost airlines can make a quicker comeback than full-service ones. Consumers could be more cost-conscious than before at a time when employment for many has been on shaky grounds.
What can make the Ryanair share price falter
That said, there are still big risks to Ryanair and aviation in general, even now.
The first is the risk of the pandemic raging on, especially as continental Europe vaccinates slowly. The Irish airline has said this is why its passenger numbers for this year will be slower than it earlier forecast.
At the same time, its share price has not been higher in years. Even if we account for the washout year that was 2020, the Ryanair share price has been flying higher in 2021 than that seen anytime in 2019 and even much of 2018.
I think this shows high expectations of the airline’s comeback. These expectations may not be met, going by the company’s own expectations as well as the slow return to normalcy.
Further, I think as aviation get closer to normal, share prices of airlines like easyJet and British Airways owner International Consolidated Airlines Group (IAG) could see a relatively sharper run up. They are still way below their pre-crash levels.
The takeaway
Even though Ryanair has a lot going for it, I am not convinced about buying at the current share price. I would, however, wait for buying opportunities whenever it dips enough. For now I am more inclined towards stocks with potential to rise further.
