I think this FTSE 250 growth stock could double your money

Rupert Hargreaves looks at a FTSE 250 (INDEXFTSE:MCX) growth stock that’s doubled in value since 2017 and has the potential to do so again over the next few years.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing in airlines is a risky business. The nature of the industry means it’s challenging for companies to control costs and price wars can quickly erode revenues.

Companies are now facing another severe threat in the form of climate change. As the world tries to get to grips with its hydrocarbon addiction, the airline industry is firmly in the sights of climate activists and policymakers who want the sector to clean up its act.

It’s difficult for legacy carriers such as British Airways owner IAG to adapt to rising fuel costs, falling ticket prices and demands for more fuel efficiency. However, for smaller, newer and nimbler competitors such as Wizz Air (LSE: WIZZ), the opportunity is there for the taking.

Surging growth

Wizz was incorporated in 2009 and, after a slow start, during the past six years the business has taken off. Net profit has grown at a compound annual rate of 27% as revenue has expanded at 18% per annum on average.

Wizz’s low-cost offering is why it’s so popular with customers. During the three months to the end of June (Wizz’s fiscal first quarter), the average ticket price was just €36.60. Where the company makes its money is selling ancillary services to customers. Costs such as food and drink on the flight and excess baggage charges amounted to €30.10 per passenger during Q1.

In fact, the company now makes nearly as much money from these services as it does from tickets. Baggage fees were €5.49 per passenger.

These extra costs don’t seem to have hurt the airline’s growth. Indeed, having flown with the airline last month, I can confirm the company provides a relatively good service providing you don’t want to take on extra baggage or change flight details at the last moment.

Growth continues

Even if customers are put off by Wizz’s extra charges, this isn’t showing through in the firm’s growth figures. According to the company’s September traffic update, passenger numbers grew by 20% year-on-year during the month and the load factor hit 94.5%.

What’s even more impressive is the business claims to operate with the lowest CO2 emissions per passenger/km among all competitor airlines. CO2 emissions per passenger fell 3.6% to 56.9 grams in September thanks to the higher load factor. This number should fall further as the company progresses with its plan to upgrade its entire fleet to more fuel-efficient planes during the next few years.

The bottom line

Over the past 10 years, Wizz has proven it has a successful business model that can be scaled up effectively. There are no plans to slow down any time soon. Earlier this year, the firm put an order in for 50 of the new Airbus A321XLR long-range aircraft to help it expand its network to more destinations.

Wizz has doubled net profit over the past five years and, as the company continues to expand, I think it could do so again over the next five.

Analysts are already forecasting earnings growth of around 44% over the next two years. And its fleet expected to expand by 42% over the next five years, it’s not difficult to see profits growing by more than 100% from current levels. If they do, I reckon the stock could double from current levels.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »