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If I’d invested £1,000 in Jet2 shares 5 years ago, here’s how much I’d have today

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Airlines have been one of the biggest casualties of Covid-19. But the Jet2 (LSE: JET2) share price has outperformed rivals such as easyJet during the pandemic.

I’m a long-time admirer of this package holiday and airline group. My experience as a customer has also been good. Are the shares still a good buy after last year’s stonking recovery? I’ve been taking a closer look.

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A market-beating flyer

Covid-19 grounded most of Jet2’s aircraft and forced executive chairman Philip Meeson to raise fresh cash from shareholders. But despite this tough period, Jet2’s share price has risen by 140% over the last five years.

£1,000 invested in Jet2 in January 2017 would be worth around £2,550 today, including dividends. By comparison, the same investment in easyJet would now be worth about £925.

What makes Jet2 different is that the pandemic does not seem to have upset the group’s growth plans. After two years of losses, broker forecasts suggest Jet2 will return to normal trading by this summer. Analysts’ estimates suggest that profits for the 2022/23 financial year could rise to £241m. That’s double the group’s 2019/20 profit of £116m.

At the current share price, these numbers value Jet2 at 11 times next year’s forecast earnings. This modest valuation might normally attract me to a potential investment. But in this case, I’m not sure — for two reasons.

The smart money is selling Jet2 shares

Meeson sold almost £24m of stock in July 2021. In November, he collected another £22m from share sales. Although the Jet2 founder still has a 20% (£535m) stake in the group, these sales suggest to me that Meeson thinks the business is fairly valued at current levels. Given his inside knowledge of Jet2, I take this seriously.

While I expect this business to perform well over the coming year, I can see several potential risks. High fuel costs and tough competition for holiday makers could put profit margins under pressure. There’s also the possibility of further Covid disruption.

Looking further ahead, Jet2 has recently made several large aircraft orders. These will require funding over the next few years. Analysts expect capital spending to increase sharply over the next 18 months.

In my view, Jet2 shares are already fully priced for a return to normal. Although I expect this business to continue growing over the medium term, I’m going to wait for an opportunity to buy the shares more cheaply.

What I’m buying

I reckon there are better investment opportunities away from the regular airline sector. One stock I’ve been buying is small-cap Air Partner (LSE: AIR). This £55m company provides a range of air travel services, mostly related to aircraft chartering.

Business has been good during the pandemic, thanks to higher levels of air freight, including vaccines. The company has also benefited from strong demand for private jet travel from corporate clients and wealthy individuals.

Air Partner’s management admits the cargo boost from Covid-19 is likely to end at some point. Broker forecasts suggest earnings could fall by as much as 20% this year.

As a long-term investor, I’m not too concerned. I think Air Partner’s diverse mix of services should support future growth and profitability. With the stock trading on less than nine times forecast earnings, I recently added more shares to my portfolio.

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Roland Head owns Air Partner plc. 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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