Just over three years ago, the Jet2 (LSE: JET2) share price was briefly above 1,900p.
That was in February 2020. And the peak in the price topped out a phenomenal growth run for the leisure travel company. Over the prior seven years, the stock had multi-bagged for shareholders.
But then the pandemic happened. And that grounded the company’s airline and removed the demand for its package holidays. The share price plunged and hit a low, to just under 500p, in March 2020.
Earnings rebuilding fast
Since then, trading has been difficult. And the share price has been volatile. But earnings are now rebuilding fast. And the company appears to be making more money in 2023 than it did in the year before the pandemic.
It seems that growth is gathering momentum once again. Yet the stock is still in a consolidation pattern. And it has yet to shoot up like it did before Covid when analysts forecasts were robust.
To help put things in perspective, the share price is around 13% higher than it was a year ago.
Meanwhile, City analysts expect earnings to increase by just under 15% in the current trading year to March 2024. And that’s after a surge in profits last year that restored black ink to the bottom line of the accounts after two years of losses.
Of course, estimates can prove to be inaccurate. But set against those expectations, the forward-looking price-to-earnings multiple is around eight and a half for the current trading year.
And If Jet2 really is back on a fast-growth trajectory, the stock’s valuation now looks modest. Therefore, I think the opportunity is worth investors’ research time now.
There’s even a sizeable net cash position on the accounts. But Jet2 tapped investors with two big share placings to raise millions in 2020 and 2021. The move strengthened the balance sheet but diluted existing shareholders.
A vulnerable business model
And that situation underlines the cyclical vulnerability of the business model. Hopefully, we won’t see another pandemic any time soon. But the Jet2 business is exposed to general economic and geopolitical factors. And that adds risks for shareholders now, despite the growth in operations we are seeing.
In April’s trading update, the company reported sales for this summer a little higher than the equivalent period in 2022. But warned of the unknown effects of the potential threat of European air traffic control disruption.
On top of that, the directors said the business faced input cost pressures including fuel, carbon taxes, a strengthened US dollar and wage increases. But set against those challenges, demand for holidays abroad appears to be robust.
We’ll find out more about the recent progress of the business with the preliminary full-year results report due on 6 July. And that will likely include a fuller outlook statement regarding the all-important current summer trading period.
I’ll be keen to read that. And in the meantime, I’m digging deeper because Jet2 may be on its way back to 1,900p and beyond.
