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Dart Group share price: is it time to buy?

The Dart Group (LSE: DTG) share price is in recovery. Previously caught in the stock market crash, it plummeted 85% in a single month earlier this year. However, investor confidence is returning to the AIM-listed travel-leisure business.

Notably, the last couple of months witnessed Dart’s directors buying up the stock. CEO Philip Meeson now holds over 48m shares, more than all its institutional investors put together.

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The future of aviation

Investing oracle Warren Buffett famously advised investors to be greedy when others are fearful. And there’s little doubt that many are fearful of airlines right now. However, far from being greedy, Buffett recently dumped his airline stocks, very likely selling low after buying high. This indicates that he could also be fearful for the future of commercial aviation.

He may be right. The coronavirus pandemic is probably the toughest challenge yet for the airline industry. The global enforced shutdown destroyed passenger numbers almost overnight. In addition, fears about another virus peak and upcoming recession mean passenger numbers may take years to recover.

However, according to Dart Group, bookings are staying strong for late summer 2020 and winter 2020/21. Apparently, an “encouraging number” of people are choosing to rebook holidays with Jet2, its low-cost airline, rather than cancel them. It may be that people want to spread their wings after lockdown. If so, the travel industry may recover more quickly than expected.   

Dart Group share price fundamentals

Prior to the stock market crash, the Dart Group share price reflected the company’s noteworthy earnings performance. Revenues and pre-tax profits were trending upwards over the previous five years, and earnings per share increased from 21.3p in 2015 to 96.4p in 2019.

Compared with its competitors, Dart’s financial position is still very strong. Notably, it is the only one of its peers to report a net cash position. In other words, it’s still able to pay its short-term debts from the cash the business generates. By comparison, IAG and easyJet‘s net cash position is negative.

Dart Group’s recent sale of Fowler Welch, its former distribution and logistics business, for £98m will help this further. It may also assist the group in continuing to pay its 1.2% dividend yield to its shareholders. Although this dividend is small, it’s grown year on year since 2015. Something to bear in mind.

On the other hand, rising fuel costs, up to 20% of operating expenses for some airlines, reduced margins across the industry in 2019. Airlines often hedge their fuel costs and Dart Group’s Jet2 is no different. Consequently, the firm is likely to have already locked in higher fuel prices for the next year or two.  

However, no one could have predicted oil prices would tank so badly this year. With many airlines already having hedged their fuel costs, this is good news for companies like BP. Not so much for the Dart Group share price.

On the flip side, there may be future gains from any recent hedging activity. Possibly something for the firm to look forward to. 

Dart Group is a profitable ray of light in an otherwise gloomy aviation sector. It could be a great recovery buy as a riskier investment in an otherwise balanced portfolio. 

But, there are likely less risky small cap investments out there.

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