We recently published a list of The 10 best airline stocks to buy, according to short sellers. In this article, we take a look at the position of Ryanair Holdings plc (NASDAQ:RYAAY) compared to other airline stocks.
The impact of the COVID-19 pandemic on travel led to an alarming 54.1% drop in the airline industry’s revenue, from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has grown significantly since then, with annual revenues estimated to reach $996 billion by 2024, representing 18.8% growth over 2019 and a 159% recovery from the pandemic low.
On the other hand, the Business Research Company predicts that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. In the coming years, the airline industry size is expected to expand significantly at a CAGR of 8.8% to reach $794.61 billion in 2028. According to the above study, the increase in the number of air passengers is driving the growth of the airline industry. For example, in March 2023, the U.S. government’s Bureau of Transportation Statistics reported that the number of passengers carried by U.S. airlines increased by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia Pacific was the world’s largest airline market in 2023 and is expected to be the fastest growing region in the airline market study throughout the forecast year.
In addition, the booming airline market is also driven by the growing tourism market. For example, in December 2022, New Zealand’s Ministry of Business, Innovation and Employment reported that tourism spending in the country reached $26.5 billion, up 2.7% from $704 million the previous year. Most importantly, the number of foreign visitors to New Zealand increased by 335.3% to 229,370.
Consumer confidence in leisure travel remains high. Aircraft leasing and US airline analyst Jamie Baker explains: “Our prevailing thesis is that demand for premium and international air travel remains at the forefront.” Nevertheless, limited capacity and lower costs are two challenges facing airlines worldwide. In China, on the other hand, domestic passenger levels are expected to remain high, while outbound tourism levels are expected to rise in the coming months. IATA has raised the industry’s 2024 profit forecast in Asia-Pacific by almost 18%. According to its longer-term forecasts, Asia-Pacific will have the fastest growing air travel growth in the world, with an average annual passenger increase of 5.3% over the next 20 years.
Meanwhile, U.S. airlines have placed an emphasis on deleveraging, which should help strengthen their balance sheets and credit ratings over time. The domestic industry reported total debt of $143 billion at the end of 2023, down about 15% from 2021 levels. Investors who take a long-term view and diversify their portfolios could benefit from the industry’s revival and expansion in the coming years.
Methodology:
We combed through the holdings of airline ETFs and online rankings to come up with an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of short selling. The stocks are sorted in ascending order of the lowest percentage of short selling. We also mentioned the number of hedge funds that have long positions in these stocks in the second quarter of 2024.
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (See more details here)
A Boeing 737 stands in an airport terminal and passengers wait to board.
Ryanair Holdings plc (NASDAQ:RYAAY)
Percentage of shares sold short: 3.93%
Number of hedge fund owners: 20
Ireland-based Ryanair Holdings plc (NASDAQ:RYAAY) operates scheduled flights across Europe and beyond, as well as ancillary services such as in-flight shopping, car rental services and travel insurance. Founded in 1996, the company offers a range of travel-related services through a website and mobile application, in addition to handling and maintaining aircraft.
The biggest share loss since 2016 came when Ryanair’s profit fell 46% in the first quarter of 2024, below estimates year-on-year. CEO Michael O’Leary warned of the ongoing price slump and forecast double-digit declines in the second quarter of 2024.
However, Muneeba Kayani, an analyst at Bank of America Securities, has reiterated her positive view on the flight services company and maintained a buy rating. This assurance is based on Ryanair’s deliberate focus on gaining market share with its “actively load, passively earn” strategy, even in the face of a significant year-on-year decline in airfares in the first quarter. Kayani believes this aggressive approach to securing market share, even in times of low consumer demand, will pay off in the long term.
Ryanair has forecast that it will carry between 198 million and 200 million passengers by FY2025, confirming its commitment to its expansion strategy. Kayani sees solid cash flows and forecast above-average earnings growth from FY2024 to FY2029 as the main drivers for a higher P/E target, despite a downward revision to FY2025 net profit expectations.
Conventum – Alluvium Global Fund stated the following about Ryanair Holdings plc (NASDAQ:RYAAY) in its Q2 2024 investor letter:
“Ryanair Holdings plc (NASDAQ:RYAAY) (down 22.3%) reported solid annual results that were broadly in line with expectations. The only negative was the ongoing delivery delays at Boeing (which impacted passenger growth forecasts). On the positive side, demand remains strong, Pratt & Whitney’s engine issue continues to impact competitors, and industry consolidation is driving pricing momentum. Ryanair has increased capacity by 36% since the pandemic, while almost all competitors are at lower levels. Management has shown confidence with the EUR 700 million buyback and the announced dividend. We have not had to revise our assumptions, so our views on sustainable earnings and valuation remain unchanged. As the share price fell further below our valuation, we took the opportunity to increase our stake, which now represents 4.6% of the fund.”
Thanks to a strong balance sheet and the ability to support share buybacks with free cash flow, Ryanair Holdings plc (NASDAQ:RYAAY) has a solid financial position and a positive future.
It is the The best airline stocks to buy, according to short sellers and analysts have collectively rated the stock as a Buy. The average price target of $158.5 suggests a potential gain of 49.90% from the current share price of $105.74.
Total RYAAY 2nd place on our list of the best airline stocks to buy according to short sellers. While we recognize RYAAY’s potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you are looking for an AI stock that is more promising than RYAAY but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
