While it may be tempting to try and win millions on the National Lottery, the chances of actually winning big money are relatively slim. By contrast, the chances of making a high return on the stock market could be much higher. That’s especially the case while there are shares such as easyJet (LSE: EZJ) trading on low valuations.
Although the company is experiencing a challenging period at the present time, it could be worth buying alongside a sector peer which reported a positive trading update on Tuesday.
Growth potential
The company in question is Central and Eastern European-focused budget airline Wizz Air (LSE: WIZZ). Its trading update for the fourth quarter of its 2019 financial year showed that it performed in line with expectations. Demand has remained robust, with load factors up by 2.6 percentage points to 94.1%.
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In the new financial year, revenue per available seat per kilometre is forecast to rise by 4%. Its revenue performance is due to be boosted by strength in the company’s ancillary revenues, while cost discipline remains a key consideration for the business.
Although Wizz Air and its peers face an uncertain future due in part to weak consumer confidence, the company is still expected to post a rise in net profit of 21% in the current financial year. Since it trades on a price-to-earnings growth (PEG) ratio of 0.6, it appears to offer good value for money at the present time. While its shares could prove to be somewhat volatile over the near term, they may deliver impressive capital growth in the long run.
Uncertain outlook?
As mentioned, the prospects for easyJet and the wider European airline sector continue to be uncertain. As the company’s update released this week showed, consumer demand in the UK and in mainland Europe has been weak, with this situation expected to remain in place over the near term. As such, there are continued risks facing the business at a time when fuel costs have also risen in recent months.
Of course, the airline industry is, by its very nature, highly cyclical. There is an ebb and flow to demand, with capacity changes being the end result of this as smaller, less financially strong competitors go under. This situation appears to be in progress at the present time, with easyJet’s strong balance sheet and low cost base putting it in a good position to increase market share over the medium term.
In the current year, the company is forecast to post a rise in net profit of 18%, while a PEG ratio of 0.6 suggests that it offers a wide margin of safety. Although uncertainty is high at the present time, and it would be unsurprising for its shares to come under pressure, in the long run, the stock may be able to generate impressive growth relative to its sector peers.
