As investors wonder when the volatile swings in the broader markets may end, I would like to bring to your attention Wizz Air Holdings (LSE: WIZZ), one of Europe’s largest low-cost airlines. Wizz shares have had a difficult second half in 2018, and the price is down over 8%. Yet the airline has a robust fundamental story with a strong balance sheet and is profitable. So could 2019 be the year the Wizz Air share price takes off again?
Robust growth outlook
Following its first flight in May 2004 and a subsequent initial public offering (IPO) in 2015, Wizz Air now offers over 600 routes from 25 low-cost airport bases in Central and Eastern Europe (CEE). Air Transport World – a leading airline trade magazine – named Wizz the 2016 Value Airline of the Year, citing its remarkable success story, based on double-digit growth in passenger numbers, routes, and revenue. Since then, management has continued to deliver an annual revenue growth of over 15% while keeping operating costs low.
Analysts are also impressed with WIZZ’s annual net income growth of over 10%. The company’ simple but efficient business model certainly contributes to the bottom-line growth: Wizz Air flies a single type of airplane and relies heavily on technology to offer an efficient customer experience. So far the company has a reliable track record of producing profits and generating cash which it redeploys to further expand its fleet and routes.
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The company is also exploring new routes and airports as it works to add to its revenue growth and following the demise of Monarch and Air Berlin, it has taken their airport slots at Luton and Vienna. I believe Wizz Air still has sizeable market share opportunities across not only the CEE markets, but also in other under-penetrated countries throughout Southern Europe and even the Middle East and North Africa as residents in these regions have increasing disposable income to dedicate to travel.
Should we worry about the airline industry?
The global airline industry faces a large number of risk factors, such as volatile and rising fuel prices, political uncertainty (including the potential impact of a no-deal Brexit scenario or political instability in Ukraine), an economic downturn in any given region, and foreign exchange risks. It is also highly competitive and Wizz Air faces competition from other low-cost airlines, such as Ryanair. Investors should weigh all these factors when they determine individual portfolio allocations and risk/return profiles.
However, despite continuing political and economic concerns about the airline sector, the company’s fundamental story remains intact both thanks to Wizz management’s commitment to growth and favourable demographic and economic trends in the region. Stable or even lower fuel prices in 2019 would further contribute to Wizz Air’s bottom line.
Time to invest?
December may bring further volatility to the stock market, and I would not advocate bottom-picking. However, the long-term growth trend of Wizz Air makes its shares a buy candidate, to me, at current levels. At The Motley Fool we believe in holding shares for the long term. Within four or five years, value investors could be rewarded handsomely by WIZZ shares if the growth story plays out as I expect.
