FTSE 250 stock Wizz Air (LSE: WIZZ) has tanked recently. Over the last month, it has fallen about 27%.
Is this a great buying opportunity? Or are there better UK stocks to consider today? Let’s discuss.
The stock looks cheap
At first glance, Wizz Air shares do look cheap right now. Currently, the consensus earnings per share (EPS) forecast for the year ending 31 March 2025 is €3.54.
So at today’s share price and GBP/EUR exchange rate, we’re looking at a forward-looking price-to-earnings (P/E ) ratio of just 4.9. That’s a very low valuation.
A value trap?
I’m just wondering if we could be looking at a value trap here (a value trap is a stock that looks cheap but has poor fundamentals and turns out to be a lousy investment).
Recently, Wizz Air posted its results for the three months to 30 June, and they weren’t great. In fact, they were pretty ugly.
For the quarter, operating profit was down 44% to €44.6m.
Meanwhile, the company lowered its full-year guidance (quite significantly). For the full year, it now expects net income in the range of €350m-€450m, down from its previous forecast of €500m-€600m. So we could be about to see some big cuts to EPS forecasts here.
One other thing worth highlighting from the results was that net debt was €4.8bn. That’s a lot of leverage and it adds risk to the investment case (and helps to explain the low valuation).
Multiple challenges
In terms of the earnings slump, it seems there are three main challenges Wizz Air’s facing right now.
First, competitors such as RyanAir are lowering their prices. “Our fares are still improving, but our competitors are dropping theirs and that impacts us,” said CEO Jozsef Varadi after the results.
Second, the airline is experiencing setbacks due to the Pratt & Whitney GTF engines in its planes. At the end of June, 46 of its planes were grounded for inspections, placing constraints on capacity.
Third, staff costs have ballooned. Last quarter, these were up 15% to €137m.
On top of all this, the company was recently fined €770,000 by Hungary’s competition authority for misleading communication.
So overall, Wizz Air’s not in great shape right now.
Better shares to buy?
Now, these may all be short-term issues. So we could see the shares pull up from their recent nosedive in the medium term.
It’s worth pointing out that there’s been some director dealing in the last few days (including a purchase of 10,000 shares from a trust associated with the CEO). So insiders clearly expect the shares to recover.
I can’t say I’m tempted to buy the shares though. Given the uncertainty here, I think there are better UK shares to buy for my portfolio today.
