Down 44% this year! Is there a soft landing for this crashing FTSE 250 stock?

Can this embattled FTSE 250 stock provide an excellent opportunity for growth-focused investors, or is it simply a value trap? Our writer investigates.

| 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 Asian woman with head in hands at her desk

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.

Down 44% this year, budget airline Wizz Air‘s (LSE: WIZZ) one of the worst-performing stocks on the FTSE 250.

To some investors, a collapsing price is a sign to stay away. To others, it’s an opportunity to grab some cheap shares. In either case, both sides could be wrong or right. It depends on why the stock’s crashing and whether it can recover.

Even the best companies experience dips from time to time but in some cases, they never recover. To avoid getting sucked into a value trap, it’s important to gauge the company’s prospects. First, I check if there’s sufficient demand for its product or service. Then I evaluate its ability to outperform rivals. Lastly, I check whether it faces any significant risk from external factors.

Should you invest £1,000 in Wizz Air right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Wizz Air made the list?

See the 6 stocks

Let’s see how Wizz Air measures up.

A recovering industry

The airline operates a budget-friendly, no-frills service model, attracting price-sensitive travellers. This model’s proven popular in recent years and will likely remain in high demand. Before the pandemic, it was rapidly expanding its operations across Europe and beyond. But the year-long travel ban combined with lingering inflation has taken its toll.

After peaking at £55 per share in March 2021, the share price has since collapsed to almost £12. It’s now lower than it’s been in over 10 years. So is a recovery possible for the £1.26bn company? I’m digging into its financials to try and find out.

Created with Highcharts 11.4.3Wizz Air Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Valuation and risks

With the share price now so low, Wizz Air’s estimated to be undervalued by almost 92%, based on future cash flow estimates. Still, analysts don’t expect exceptional growth — at least, not in the immediate future. While earnings are forecast to grow 15.6% a year going forward, earnings per share (EPS) are expected to decline to £2.72.

The subdued forecast may be factoring in risks related to the Middle East conflict. Oil prices jumped last week after the situation escalated and many airlines have been forced to cancel flights to the region.

What’s more, it’s in a highly competitive industry. While Wizz Air’s a leading airline in Eastern Europe, it often struggles to match the low prices offered by Ryanair. All these factors put pressure on the company’s operations and could hurt the share price.

Financial position

Despite the problems mentioned above, Wizz Air has a good forward price-to-earnings (P/E) ratio of 5.5. This is lower than key competitors easyJet and Jet2. Analysts forecast an average 12-month price target of £19.20 for the stock, a 57.8% increase. If they’re right, there’s a chance the stock could be a lucrative investment.

But there remains a huge concern for me — the airline’s balance sheet. With a £1.29bn market-cap and £6.27bn in debt, it’s in a very precarious financial position. And its level of interest coverage from operating income is only at 1.3 times, putting it at an increased risk of defaulting.

For me, that makes the stock too risky to invest in right now. However, if earnings improve and it reduces its debt load, I may reconsider. 

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Mark Hartley has positions in easyJet 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.

More on Investing Articles

Investing Articles

10% dividend yield! Here’s a FTSE 100 share to consider in April for passive income

This FTSE 100 stock just soared past the 10% yield mark, making it a potentially lucrative option for investors targeting…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

3 FTSE 100 safe haven stocks to consider as trade wars bite

I'm confident in the long-term outlook for the FTSE index of stocks. But these blue chips may protect investors from…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »

Investing Articles

These FTSE shares may offer some safety as Trump slaps tariffs on trading partners

FTSE shares moved lower on 3 April, after US President Donald Trump introduced hefty tariffs on its trading partners. These…

Read more »

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »