Low-cost airline Wizz Air (LSE: WIZZ) was flying high until very recently. Its share price touched all-time highs in March. But three months later, it has tumbled a fair bit. A whole 17% to be exact.
I think this should have been expected.
Why has the Wizz Air share price come off?
After vaccines were developed late last year, a relief rally ensued that increased share prices across the board. Notably, the share prices of companies most affected by Covid-19, like travel and retail, saw big run-ups. However, the vaccination process has been slow and the new Delta variant is also making the situation more challenging. Air travel is still slow as a result, and the UK is still partly in lockdown.
It is little wonder then that the Wizz Air share price that rallied in anticipation has now come off a bit. A similar trend is also evident in the easyJet share price, making it clear that it is a broader trend and not one that is limited to Wizz Air alone.
Can the aviation stock pick up from here?
However, even with the fall in share price it is still up by almost 39% over the year. It makes sense for me to buy the stock only if there is a chance that it will rise more. I think that depends on how much and how fast air travel picks up. CEO Jozsef Varadi is optimistic. According to a recent Reuters report, he has said that the airline will see full recovery in 2022 both in terms of volumes and financials.
Partial recovery is already visible. The airline is already operating at 60% to 65% of its 2019 capacity. Moreover, it expects that it will fly even more this summer than it did before the pandemic. The company has also acquired new jets to improve its performance after air travel restarts in earnest.
My concerns
I am inclined to take this optimism with a pinch of salt. There have been way too many false starts in the past year to know for sure that air travel will well and truly take off soon. We are not out of the woods as far as Covid-19 is concerned even now. And it is reasonable to expect we may not be for the next few months.
Would I buy the Wizz Air stock?
At the same time, here is little doubt that Wizz Air will recover eventually. But that may or may not be soon. In the meantime, the share price run-up has created a mismatch with the actual performance, which is far below its pre-pandemic levels both in operational and financial terms. Since it will take time before the airline comes back to its earlier financial health, I think that this mismatch will be addressed by investors at some point.
For this reason, I think it is more likely there will be a further decline in the Wizzair share price in the short to medium term than an increase. I will continue to wait and not buy it right now.
