When I wrote about the low-cost airline stock Wizz Air (LSE: WIZZ) last month, its shares were falling fast from their all-time highs in March. My sense was that they could fall even further. And they did. A week ago, they were down by another 10%, before recovering somewhat. But will they fall even more? I try to figure that out here.
Wizz Air shares run up after results
The FTSE 250 company released its results for this financial year’s first quarter (April–June 2021). They are expectedly improved from last year when travel was at its bare minimum. Its revenues are up 119% and passengers carried are up 318%. It is still loss-making of course, but its prospects are better too.
According to József Váradi, CEO of the Switzerland-headquartered airline, “In July and August 2021 we expect to operate around 90% and 100% of our 2019 capacity, respectively, making Wizz Air the first major European airline to fully recover capacity to pre-Covid-19 levels”. This, to me, was the standout statement that can positively impact Wizz Air shares.
It may even have. The airline’s shares are up 7.3% in today’s trading, presumably following its update. But can it continue to rise from here?
Can the FTSE 250 stock continue to fly?
I am not so sure. Its share price is higher now compared to pre-pandemic levels. And at the same time, its financials are in a worse situation. It expects to return to 2019 level of operations this summer, but I reckon that its financials will take longer to improve. Also, passenger numbers may increase only in the busy season and travel during the rest of the year may not be quite as robust. As a result, I am unable to reconcile its price increase with its fundamentals.
It could be further buoyed by investor optimism, but I do not like to make that the basis for making long-term, or even short-term, investing decisions for my portfolio. Just a few days ago, the stock markets had a mini meltdown as a mix of risks, including increasing coronavirus cases and inflation, dragged down investor sentiment.
And given the recent rise in cases and even hospitalisations in the UK, I think we should expect the pandemic to be around for some time more. Wizz Air is prepared for this. In the update, Váradi also mentions that it will “maintain operational flexibility to deal with evolving travel restrictions as a result of Covid-19 developments”.
Would I buy Wizz Air shares now?
Considering these factors, I am not convinced to buy this FTSE 250 stock right now. If its share price was way below its pre-pandemic levels, it would be a good buy for me. In fact, I did buy the International Consolidated Airlines Group stock for that reason recently.
But I am struggling to justify investor euphoria around the Wizz Air share price. I will wait for its share price to fall before buying it, even though the trend is in the opposite direction for now.
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Manika Premsingh owns shares of the International Consolidate Airlines Group. 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.