Should investors buy Jet2 shares right now?

The Jet2 share price has a track record of beating the market. Roland Head explains why he thinks this holiday travel group could be a good buy right now.

| 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.

Young mixed-race couple sat on the beach looking out over the sea

Image source: Getty Images

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.

Shares in airline and package holiday group Jet2 (LSE: JET2) have risen 65% over the last five years. This share price performance is a big contrast to that of rivals easyJet, TUI and IAG. All of these companies have seen their share prices fall by 60%, or more, over the same period.

Jet2’s market-beating performance helps explain why it’s my top travel pick from the UK market.

Of course, there’s more to finding good investments than simply looking for companies with a rising share price. My pre-flight checklist always includes good management, a healthy balance sheet, clear strategy and strong cash generation.

I reckon Jet2 scores well on all counts — and I don’t think the shares look expensive at current levels. Here’s why I see this £2bn firm as a buy for 2023.

Why I’d buy Jet2

To be honest, I don’t usually buy airline stocks. They have massive fixed costs and they’re heavily exposed to oil prices. They’re also vulnerable in a recession — if travellers stay home, aircraft still have to be paid for.

However, Jet2’s focus on leisure travel and its package holiday business have helped the group overcome this weakness. Between 2013 and 2019, the group’s annual sales rose from £869m to £2964m. Profits also jumped from £31m to £137m.

Jet2’s first post-pandemic results suggest to me that this well-run business has picked up where it left off in 2019. During the six months to 30 September 2022, revenue rose to £3,568m, while profits rose to £356m. Both figures were at least 25% higher than the equivalent period in 2019.

The business has other attractions for me too. Executive chairman Phillip Meeson has run the business since 1983 and has an 18% shareholding.

I’m a fan of owner-managed companies. I find they often perform well as long-term investments, because management is focused on sustainable growth, rather than quick fixes.

Is it the right time to buy?

I think this business is well run and is relatively unlikely to mess things up internally. But I can’t ignore the wider economic backdrop and the risk of external problems.

The UK seems likely to suffer a recession — or at least a slowdown — over the coming year. That could hit consumer spending. Big ticket items like holidays are more likely to be sacrificed than, say, coffee and sausage rolls from Greggs.

Disruption at airports is also a risk. The problems last summer cost Jet2 more than £50m in compensation and delays.

The latest broker forecasts suggest the group’s profits will be flat this year before returning to growth in 2024. A recovery might take longer than expected, but this seems a reasonable estimate to me.

At current levels, Jet2 shares are priced at 10 times forecast earnings. I think that could be a good starting point for an investment, based on the group’s track record of growth.

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.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »