Are easyJet plc, Next plc And International Consolidated Airlines Grp SA About To Lag The FTSE 100?

One of the best performing retail shares of recent years has been Next (LSE: NXT). Its share price is up by 241% in the last five years and has beaten the FTSE 100 by 244% over that time.

Set to slide

With the UK economy continuing to offer a bright outlook for consumers, many investors could understandably be viewing Next as a rather stable and consistent company in which to invest. After all, its bottom line has risen at a double-digit rate in each of the last four years, which highlights its consistency.

But while Next is forecast to continue to grow its earnings in the current year and in financial year 2017, the rate of growth is set to slide. Although rises in net profit of 8% this year and 6% next year are in-line with the wider index, Next’s valuation appears to more than sufficiently price in this rise.

For example, it trades on a price to earnings (P/E) ratio of 15.5, which results in a price to earnings growth (PEG) ratio of over 2 when its growth rate is factored in. So, while Next is a great company which is likely to continue to offer excellent growth, its future share price performance may not be quite so impressive.

Viable option

Also delivering excellent profit growth in recent years has been easyJet (LSE: EZJ). The budget airline’s profitability has been aided by simple and yet effective measures such as allocated seating as well as a renewed focus on business travellers. Both of these policies have contributed to easyJet’s net profit growth which has been at least 13% per annum in each of the last five years.

Looking ahead, easyJet is expected to grow its earnings by 8% in the current year. While that is a similar rate of growth to Next, easyJet trades on a much lower valuation than its index peer. As such, easyJet’s PEG ratio works out as 1.5 and this indicates that its shares have a good chance of continuing the rise which has seen them increase in value by 258% in the last five years. Plus, with easyJet yielding 4%, it remains a viable income option, too.

Extremely appealing

Sticking with airlines, British Airways owner IAG (LSE: IAG) is continuing to turn its financial performance around. The company’s bottom line is due to rise by 36% in the current year and this is expected to allow it to increase dividends per share by around 49% this year.

Clearly, this puts the stock on the radar of income-seeking investors and means that it is due to yield 3.5%. And with IAG forecast to pay out just 23% of profit as a dividend this year, there seems to be scope to increase dividends at a rapid rate in future years.

With the global economic outlook being uncertain, there is a risk to IAG’s future growth rate. However, with the company’s shares trading on a PEG ratio of just 0.3, their risk/reward ratio continues to be extremely appealing. As, such both IAG and easyJet have the potential to beat the wider index this year.

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Peter Stephens owns shares of easyJet. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.