Image source: Getty Images
I Wizz Air Holdings share price (LSE:WIZZ) share price rose after the US election result on Wednesday (6 November). But the company’s H1 earnings sent the stock back down.
Still, the challenges the business has been facing are common and there are clear reasons for optimism. So is the stock too cheap to ignore?
Results
In general, there are two things that airplanes don’t like. The first one operates flights with unused capacity and the other has flights that are not used at all.
In the six months between April and September, Wizz was dealing with both. As a result, it is not a big surprise that the latest trading update was not particularly positive.
Revenue increased slightly compared to last year, but operating profit fell by 33%. Yet to some extent, investors should not have been surprised by this.
The firm’s engine problems are known and the airline releases its passenger data every month. More importantly, there are good signs going forward.
Reasons for optimism
Wizz is not to blame for the engine problems that meant 41 of its 220 or so planes were out of service at the end of September. And it is entitled to compensation for this.
So far, that hasn’t ended the workforce reduction. But the company is looking to renegotiate with Pratt & Whitney, which manufactures its jet engines.
On top of this, load factors – the percentage of available seats sold – improved in October. Wizz managed about 93% capacity, which is very close to normal levels.
Both of these are reasons to think that the business may be among the worst challenges of recent times. So should investors view this as a potential buying opportunity?
Opportunity to buy?
Wizz’s share price is near a 52-week low, but I don’t see this as a great stock. I think the business is facing too many challenges that are beyond its control.
The conflict in the Middle East is a good example. Wizz has been trying to innovate with low-cost flights to the region recently, but the political climate has been very difficult.
There is not much the company can do about this. And the impact that reduced passenger numbers can have on an airline’s profitability makes this a bigger concern than it might otherwise be.
It’s natural to think that things will get better from this point on – and that can be true. But in the long run, I think the risks outweigh the rewards from an investment perspective.
Short interest
One last thing to mention. Shares of Wizz have attracted the attention of short sellers recently, especially after the weak load factor data from September.
This means that the stock can go higher if things get better – a rise in the share price may force short sellers to close their positions. That’s remarkable, but not enough for me to buy.
Source link
