Jet2 (LSE:JET2) is not a FTSE airline/travel company I had considered investing in until recently. However, it was really a case of discovery. The stock has surged 31% over the past month, but I still think it could go much higher. Here’s why.
Strong recovery and impressive progress
Jet2’s turnaround since the pandemic has been nothing short of remarkable. Revenues bounced from just £395m in 2021 to a projected £8.6bn by 2027, reflecting not only a recovery in demand but also the group’s well-managed expansion strategy. EBITDA is forecast to rise from negative territory in 2021 to £910m by 2027, while net income is expected to top £470m in the same year. This is all taking place while the firm continues to invest in its fleet and offering.
Net cash sweetens the deal
One of Jet2’s standout financial features is its net cash position. From 2023 onwards, the company’s net cash (negative net debt) has surged, rising from £1.25bn in 2023 to a projected £2.45bn by 2027.
Interestingly, when the stock fell in early April following Trump’s tariff announcement, it was trading just above its net cash value. In fact, the enterprise value of the company was less than one year of net earnings.
This net cash strength gives Jet2 enormous flexibility. It can invest in new aircraft, weather economic shocks, or potentially return more cash to shareholders. Importantly, it also means that traditional valuation metrics-such as enterprise value (EV)-to-EBITDA and EV-to-free cash flow (FCF) are particularly attractive, as they fully reflect the company’s cash-rich position.
Focusing on forward, net cash-adjusted metrics, Jet2 looks attractively valued. The EV-to-EBITDA ratio is forecast to fall from 2.7 times in 2023 to just 1 times by 2027, while EV-to-FCF remains around 2 times over the forecast period. These multiples are well below the sector average for travel and leisure stocks, reflecting both Jet2’s growth and its fortress-like balance sheet.
Investing for the future
Jet2 is undertaking a major £5.7bn investment to modernise its slightly older fleet (average age 13.9 years), transitioning to a majority Airbus configuration by 2031. The addition of fuel-efficient A321neo aircraft will increase capacity from 135 to 163 planes, cut fuel consumption, and boost operational efficiency.
This capital expenditure aligns with industry standards, representing about 11.4% of projected 2025 revenue and declining as sales rise. Crucially, Jet2’s robust net cash position — forecast to reach £2.7bn by 2027 — means the company can fund this ambitious upgrade without stretching its balance sheet.
Considerations
I have to add that margins in this part of the industry — package and budget — are a little tighter than for the likes of IAG. And that could present an issue for investors if we see a slowdown in economic growth or even more cost pressure. The company had previously suggested that the autumn Budget would add £25m in costs.
However, for me, Jet2’s blend of strong net cash, valuation, and forward-looking investment makes it stand out in the UK travel sector. The company’s ability to fund expansion from its own resources, rather than relying on debt, gives it a strategic advantage and reduces risk for shareholders. All considered, I may buy more even though it’s already my largest holding.
