Among companies on the FTSE 250 – the UK’s second largest index – Wizz Air (LSE: WIZZ) stock looks curiously undervalued to me right now.
The airline’s passenger numbers in 2023 so far are up 59% from the same period in pre-pandemic 2019. Its competitors – like easyJet or IAG – haven’t even recovered to baseline since Covid.
And this growth led to revenue in the last quarter of £911m. That looks very high to me compared to Wizz Air’s market cap of £2.8bn.
The crazy part is that despite this good news, the Hungary-based airline’s share price is down over 50%. I could pick up two shares right now for what one would’ve cost me in March 2021.
If today’s 2716p share price is as undervalued as it looks, Wizz Air shares could be a great investment. I’m tempted to pick up a few before it’s too late, but there are a couple of things that put me off.
Turbulent times
The reason, I believe, that explains Wizz Air’s share price is that the company is not turning a profit. Losses came in at £528m in full-year 2021 and £465m in full-year 2022.
And for 2023? CEO József Váradi said, “We continue to expect an overall net loss”.
The airline is in the ‘ultra low budget’ class, which means margins are extremely thin. So those growing revenue figures are tough to turn into net profits.
Váradi does expect profitability in 2024 though. And if the budget flyer can turn it around, then the share price of this growth stock being as low as it was in 2017 is surely undervalued.
UK’s worst airline?
The first sign that Wizz Air looks undervalued to me is that its problems are mostly external. The war in Ukraine, high fuel costs, and the cost-of-living crisis should all, hopefully, not cause profit issues for too much longer.
A bigger problem is the negative press the airline’s service seems to be getting. Just recently, I came across negative reviews of the airline on Sky News, The Guardian, and even a Daily Mail piece that called Wizz Air, “the UK’s worst airline.”
I suppose the question is: do I want to buy into a company I could call ‘Ryanair on steroids’?
Well, speaking of Ryanair, I wouldn’t mind getting the same return as the Irish firm’s shareholders who picked up 10 times returns in recent years.
If I had £1,000
My thinking on whether I want to buy shares here comes down to one question. Will travellers overlook a rough experience flying so long as it’s cheap?
I’d say they probably would. I flew Wizz Air myself last summer, and while I didn’t love my flight from London Luton Airport, I got to my destination in one piece.
And looking more broadly, I can’t ignore that budget companies like Ryanair, Aldi, Lidl, or Premier Inn have all had huge success in recent years.
Therefore, I do think there is potential here for excellent growth. If I had a spare £1,000 to invest, I’d look to open a position.
