It's down 44% this year! Is there a soft spot for this FTSE 250 stock crash?

It has decreased by 44% this year, the airline budget Wizz Air's (LSE: WIZZ) is one of the worst performing stocks FTSE 250.

For some investors, a falling price is a sign of not staying. For others, it's an opportunity to grab cheap stocks. Either way, both sides can be wrong or right. It depends on why the stock crashed and whether it can recover.

Even the best companies experience dips from time to time but in some cases, they never recover. To avoid being drawn into the value trap, it is important to measure the company's prospects. First, I check if there is enough demand for the product or its service. I then analyzed its ability to outperform competitors. Finally, I check whether it faces any significant risk from external factors.

Let's see how the Wizz Air does.

A revitalizing industry

The airline operates a budget-friendly, full-service model, which attracts price-conscious travelers. This model has proven to be popular in recent years and will remain in high demand. Before the pandemic, it was rapidly expanding its operations throughout Europe and beyond. But the year-long travel ban combined with prolonged inflation has taken its toll.

After rising to £55 per share in March 2021, the share price has since fallen to around £12. It is now lower than it has been in more than 10 years. So is a recovery possible for the £1.26bn company? I'm digging into its finances to try and find out.

Measurement and risks

With the share price now so low, Wizz Air is estimated to be undervalued by about 92%, based on future cash flow estimates. However, analysts do not expect exceptional growth – at least, not in the near future. While earnings are expected to grow by 15.6% year-on-year, earnings per share (EPS) are expected to fall to £2.72.

The low weather forecast may increase risks related to the Middle East conflict. Oil prices jumped last week after the situation escalated and many airlines were forced to cancel flights to the region.

Moreover, it is in a very competitive industry. While Wizz Air is the leading airline in Eastern Europe, it often struggles to match the low prices it offers. Ryanair. All these factors put pressure on the company's performance and can hurt the stock price.

Financial situation

Despite the issues mentioned above, Wizz Air has a good forward price-to-earnings (P/E) ratio of 5.5. This is lower than key competitors EasyJet again Jet2. Analysts are predicting a 12-month price target of £19.20 for the stock, which is a 57.8% upside. If they are right, there is a chance that the stock could be a very profitable investment.

But there is still a big concern for me – the airline's balance sheet. With a market cap of £1.29bn and £6.27bn in debt, it is in a very precarious financial position. And its interest rate on operating income is only 1.3 times, which puts it at an increased risk of default.

To me, that makes the stock too risky to invest in right now. However, if the profits improve and it lowers its debt burden, I would reconsider.