Will Ryanair’s stock gains and strong valuations help it fly?

Key points

  • Ireland’s Ryanair posted impressive price gains in October and could come off a base.
  • Ryanair CEO predicts strong rebound in travel. Other airlines provided good prospects for travel in the fourth quarter.
  • Analysts have a “moderate buy” rating on the stock, with a price target of $104.50, up 53.99%.

Professional investors are always on the lookout for stocks that can be bought at low valuations. In an industry recovering from a pandemic, based in Ireland Ryanair Holdings (NASDAQ: RYAAY) is showing signs of institutional buying with a one-month gain of 11.17%. The title is trying to fly over a drop of 34.26% since the beginning of the year.

The company operates as a European discount airline. It is based in Dublin and serves routes in its home country, the UK, mainland Europe and a few cities in North Africa.

The stock also posted an impressive one-week gain of 7.39%. Shares closed Thursday at $67.77, up $0.50 or 0.74%. Trading volume was 14% above average.

Forecasts for airline stocks show much clearer skies than in the past two years. Companies such as German Lufthansa, Southwest Airlines (NYSE:LUV) and American Airlines Group (NASDAQ: AAL) provide good prospects for fourth quarter travel.

The US Transportation Security Administration (yes, those people who make you take your shoes off) said on October 17 that it had screened 2.49 million air passengers the previous day. It was the highest level since February 2020.

The best performer of awards in the airline industry is United Airlines Holdings (NASDAQ: UAL), which is up 32% so far in October. Based in Panama Copa Holdings (NYSE:CPA) also stands out, with an 11% gain this month.

Ryanair CEO Michael O’Leary told Reuters earlier this month that bookings with the airline for the autumn and holiday travel season were ahead of pre-COVID levels. 19, despite rate increases.

He added that the demand could be linked to the increase in savings rates in the event of a pandemic. However, inflation and rising energy costs for consumers in Northern Europe could dampen consumers’ willingness to travel.

Rebound in revenue growth

Aaron Dessen, certified financial planner at Payne Capital Management, told MarketBeat that he sees Ryanair’s strong revenue growth. Revenues have increased between 68% and 837% over the past five quarters. Ryanair expects 97 million additional passengers in 2023.

Dessen points out that Ryanair has taken the initiative to cover fuel costs until the start of next year, helping it to weather cost increases. It’s taken a big risk retaining most employees during pandemic downturns, but it’s reaping the benefits of a full complement while other airlines struggle to maintain full schedules with reduced staffing levels.

“It’s saved them a lot of pandemic headaches and costs because they’re able to handle this increased demand and traffic,” Dessen says.

It also avoids the public relations nightmares many US airlines endured over the summer when passengers took to social media to complain about canceled flights.

Will Ryanair's earnings and high estimates help it fly above the clouds?

Analysts see a return to profitability

It may surprise you: in the airline industry, Ryanair has the third largest market capitalization behind Delta Airlines (NYSE:DAL) and Southwest. Ryanair’s market capitalization is $15.28 billion, which puts it at the bottom of the large-cap category.

Analysts see the company bouncing back to profitability for the full fiscal year 2023. Wall Street expects net earnings of $6.42 per share. That would be up from losses in fiscal 2021 and 2022. Fiscal 2021, which included the bulk of the pandemic downturns, posted a loss of $5.36 per share, its first in years. That narrowed to a loss of $0.75 per share in fiscal 2022.

In fiscal 2024, analysts expect Ryanair to earn $6.17 per share, down slightly from the current year but still above pre-pandemic levels.

MarketBeat analyst data for Ryanair shows a “moderate buy” rating on the stock, with a price target of $104.50, a potential upside of 53.99%.

Does that mean it’s time to buy? Like many stocks right now, Ryanair’s 200-day long-term average is above its 50-day mark. It’s not uncommon. As stocks recover, this situation will eventually reverse. It’s understandable to want to get into a stock early, especially when analysts see strong upside potential.

However, with the broader market still plagued by uncertainty and the stock’s own moving averages signaling continued weakness, you might consider waiting for a better rally to take hold.

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