Results released by easyJet (LSE: EZJ) today were highly encouraging and showed that passenger numbers increased by 7.7% in the month of July, which equates to a 5.9% increase in the year to the end of July. Furthermore, the company confirmed that full-year results would see earnings between 14% and 19% higher than last year which, although slightly behind market forecasts, is mightily impressive and around twice the growth rate of the wider index.
However, is all of easyJet’s potential now priced in? As a result, is International Consolidates Airlines (LSE: IAG) a better buy?
As mentioned, easyJet is expected to post strong increases in net profit this year, but is also set to follow this up with similar gains next year. However, International Consolidated Airlines is forecast to go one better, with its bottom line on target to post increases of 83% this year and 51% next year.
Clearly, easyJet is starting from a much higher base level, with its bottom line increasing in each of the last five years, while International Consolidated Airlines has been loss making in two of the last five years. However, it shows that the sector could be returning to strong growth levels that are no longer exclusively available at budget airlines, such as easyJet.
Despite offering exciting growth prospects over the next couple of years, as well as having a very strong track record of growth, easyJet trades on a relatively low valuation. For instance, its price to earnings (P/E) ratio is just 11, which is considerably lower than the FTSE 100’s P/E of 13.5. This shows that as well as there being growth potential, easyJet also offers investors the scope for upward revisions to its rating.
Similarly, International Consolidated Airlines trades on a relatively low P/E ratio of 10.1. Although lower than easyJet, International Consolidated Airlines does not have the same level of stability when it comes to earnings growth, although it is forecast to post strong numbers going forward, as mentioned.
Both companies offer very attractive valuations and exciting growth prospects. However, easyJet has a track record of growth and seems to offer investors a more stable and consistent earnings profile than its sector peer. Certainly, International Consolidated Airlines has huge potential, as its growth prospects show, but over the next handful of years it may disappoint, while easyJet continues to deliver strong growth. For this reason, although both companies are highly attractive at present, easyJet looks just that little bit more attractive than International Consolidated Airlines.
Although both companies have strong growth prospects, neither was awarded the accolade of The Motley Fool’s Top Growth Share Of 2014.
The winner is a company that you may be familiar with, or it could be a stock that has gone under your investment radar until now. Either way, it’s well-worth finding out more because we think that it could have a strong 2014 and, as such, could make a positive contribution to your portfolio.
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Peter Stephens has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.