According to analysts, Jet2 (LSE:JET2) shares are undervalued by around 34%. So, according to their interpretation of ‘fair value’, if it were trading at that fair value and listed on the UK main market, it would be a FTSE 100 stock.
The problem therefore is twofold… it’s not listed on the main market (it’s an AIM stock) and it’s not currently worth more than the 100th most valuable company on the main market. So if it were to move to the main market, it would rank around the top of the FTSE 250.
So, will this change any time soon? Well, Jet2 is set to host its AGM tomorrow and this typically includes a trading update for the summer months.
Before the lucrative summer period, the company said it was seeing late booking patterns, which spooked investors. However, the stock could push back up if the company tells us that the late booking pattern hasn’t been an issue.
The next issue is around a main market listing. Moving to the main market could improve visibility, attract larger institutional investors, and enable inclusion in broader index-based portfolios.
On the flip side, it would bring higher compliance burdens and less flexibility for corporate decisions. Given Jet2’s strong financial position and investor backing on AIM, it may not feel the urgency to move.
As such, there’s no indication Jet2 will be on the main market or FTSE 100 in the near future.
Why analysts are bullish
Analysts are bullish on Jet2 and the valuation is likely central to this. Among other things, it has an exceptionally strong balance sheet. The company holds significant net cash, around £2.2bn and forecast to reach nearly £2.5bn by 2027. Yes, some of this includes customer deposits, but it’s still a very sizeable figure
Adjusting for this, Jet2’s enterprise value looks remarkably low relative to earnings and cash flow. Current EV/EBITDA multiples are under one for 2025, far beneath sector norms, reflecting how cash on hand effectively offsets much of the market capitalisation.
Free cash flow yields are also strong, underscoring how cheaply the market is valuing future cash generation once net cash is accounted for.
This explains why the consensus 12-month target price of 2,164p implies a nearly 34% undervaluation at present, with the most bullish analysts seeing scope for a 55% gain. In short, the market is failing to price Jet2’s cash-adjusted fundamentals, creating an unusually compelling value opportunity to think about, I feel.
More to consider
Jet2 is refreshing its fleet with new, more efficient aircraft, yet managing the overhaul without excessive expenditure or heavy borrowing thanks to strong cash reserves.
Its positioning as a value-focused leisure airline is strong marketing, including a recent viral advert that boosted brand visibility. Falling fuel prices provide a further supportive trend for margins.
However, risks remain. The last Budget pushed up operating costs, notably around wages, and upcoming decisions could affect consumer spending and travel demand. This is all happening in a competitive low-cost segment.
Personally, I believe this is the standout investment opportunity in the travel sector, and I certainly believe investors should give it plenty of consideration.
