The Jet2 (LSE:JET2) share price has slumped. In fact, it’s been fairly volatile this year, coming near £20 a share in the early summer before falling to around £13.30 today.
There’s a lot to unpack here. So let’s start by exploring why the stock has fallen? Well, it’s got a lot to do with a late booking pattern. This isn’t to say demand’s falling, but simply that holiday makers are booking later than normal.
In turn, this reduces Jet2’s visibility on revenues. This can make it hard to allocate resources to ensure demand’s met, but also to make sure that demand’s met without too much spare capacity.
This first became apparent in the company’s full-year results announced in July and then was reiterated in September.
It said that “limited visibility given the later booking profile and the remainder of summer and much of winter seat capacity still to sell”. Management noted that its EBIT for the year to the end of March 2026 is expected to be towards the lower end of the consensus range of £449m-£496m.
Jet2 is looking very cheap
I’ll caveat the below by noting that Jet2 isn’t a perfect company. The fleet’s marginally older than some of its peers. So it’s undertaking a fleet overhaul operation which can put investors off — just because it’s a large capital outlay. And its margins aren’t amazing. It’s also a UK-focused holiday operator, and the Chancellor hasn’t been kind to airlines over the past 12 months.
All that said, the stock’s very inexpensive. It currently trades at 6.1 times forward earnings. That’s lower than many of its peers. But the real strength is the company’s balance sheet with more than £2bn in net cash.
This means the enterprise value (EV) is less than £700m. That’s less than forecasted EBITDA for the coming 12 months. It’s also less than two times net income for the next 12 months. As such, the stock’s trading with a EV-to-EBITDA ratio of 0.95.
For me, this is a sign of a considerable undervaluation. Yes, operationally things haven’t been going its way. But it’s incredibly cheap and it’s a well-run company that deserves a turnaround.
Rotating away from technology
There are certainly concerns that the technology sector might be overheating. It’s not universal, but certain parts of the market appear clearly overvalued.
With that in mind, some investors may be looking to shift their money out of technology and increase their exposure to other sectors. Undervalued stocks with poor momentum could be a good place to consider.
With that in mind, I certainly think investors should consider Jet2 shares. Travel demand’s remained relatively robust since the pandemic, and I see no sign of that changing dramatically. I also believe the fleet overhaul will make it a much more efficient operator.
