Wizz Air’s (LSE: WIZZ) share price is down 37% from its 18 March one-year traded high of £18.17. This could mean it is significantly undervalued right now.
All depends on how its current price lines up compared to its ‘fair value’. This represents the true worth of a share based on the underlying business fundamentals. Price is just whatever the market will pay, derived from stock demand and supply dynamics at any given point.
So, how does the underlying business look and the stock’s fair value with it?
Solid business fundamentals?
The key driver of any firm’s long-term future is growth. And the key growth measure is earnings. This is because it generates a pile of cash which the business can use to fund major expansion initiatives.
A risk for Wizz Air’s earnings growth is the ongoing grounding of some of its aircraft due to engine trouble. As of its 12 November-released H1 2025/26 results, 35 planes remain non-operational. But the firm expects this to gradually reduce in the coming year to zero by end-2027.
As a long-term investor, I regard 30 years as a standard investment cycle. So, waiting another year or so for the full fleet to return is just a blip in that time horizon.
Moreover, analysts’ forecasts are that Wizz Air’s earnings growth will be a robust 28.9% a year to end-2027/28.
How were the latest results?
The recently released H1 fiscal year 2025/26 numbers looked strong to me.
Passenger numbers jumped 9.8% year on year to 36.5m, pushing revenue up 9% to €3.3bn (£2.9bn).
Greater volumes fed through into higher earnings, with EBITDA jumping 18.8% to €981.2m. Operating profit soared 25.8% to 439.2m, far outstripping analyst projections for €367m.
Q1’s revenue per available seat kilometres rose 2.1% but was followed by a 0.9% decline in Q2. This was due to the suspension of flights during the Israel-Iran hostilities over the period.
Wizz Air subsequently announced the closure of its joint venture operations with Abu Dhabi to de-risk its business. It is going to divert all the resources previously used there to its highest-profit margin routes in central and eastern Europe. This seems like an extremely good idea to me.
What about the share price valuation?
A discounted cash flow analysis identifies where any stock should trade, based on cash flow forecasts for the underlying business.
In Wizz Air’s case, it shows the shares are 76% undervalued at their current £11.46 price.
Therefore, their fair value is £47.75.
This is important, as in my experience assets tend to trade to their fair value over time.
My investment view
Given its strong earnings growth forecasts, and deeply undervalued share price, a younger me would have bought the stock.
The only reason I will not do so now is that I am aged over 50, and towards the latter part of my investment cycle.
My focus at this point is on shares that have these two qualities, but which also pay high dividends. I will use these to keep reducing my working commitments.
However, for those at an earlier point in their investment cycle, I think the stock is well worth considering.
But I have my eye on several similar high-growth, deeply-discounted shares that also deliver a high dividend yield.
