Image source: Getty Images
FTSE budget airline Wizz Air (LSE: WIZZ) is down 53% from its 12 June one-year traded high of £25.46.
I am not surprised. Its 2025 results released on 5 June showed a 61.7% year-on-year fall in profit to €167.5m (£141.1m).
However, the question I ask when I see results like this is whether the worst has likely been seen. If I think it has, then the stock in question could be a stunningly good bargain buy.
Are things set to improve?
The key factor driving profits lower was the grounding of 46 of its aircraft last June due to engine problems. Around that point, the firm reduced its 2025 profit forecast from €450m to €350m.
Following unrealised foreign exchange losses resulting from inadequate risk hedging, this was cut again, to €125m-€175m.
Therefore, the actual 2025 profit figure was at the higher end of the forecast range, albeit one that had been lowered twice.
At the end of its full-year 2025, 42 planes were grounded, which fell to 37 in May. The airline expects around 34 aircraft to be grounded by the end of H1 2026 — clearly an improvement.
Additionally positive is that it received 26 new Airbus A321neo planes that will further mitigate the losses from the groundings. And it has also approved a new programme aimed at better hedging its currency risks.
A longer-term risk to the firm is the intense competition in the sector, which could squeeze its margins.
However, consensus forecasts are that the firm’s earnings will grow 23% a year to the end of 2027/28.
Is the stock undervalued?
A stock’s price and its value are not the same thing. This means that just because a share has dropped in price does not mean it is undervalued. It could be that the underlying business is simply worth less than it was before.
To begin to find out what is true in Wizz Air’s case, I compared key stock measures with its competitors.
On the price-to-sales ratio, it trades bottom of its peer group, at 0.3 against an average of 0.7. The firms comprise Jet2 and International Consolidated Airlines Group each at 0.6, easyJet at 0.5, and Singapore Airlines at 1.1. So Wizz Air is very undervalued on this basis.
The same is true of its 6.4 price-to-earnings ratio compared to its competitor group average of 8.2.
I ran a discounted cash flow analysis to put these numbers into a share price context. This model highlights where any firm’s share price should be, according to cash flow forecasts for the underlying business.
The DCF shows Wizz Air’s shares are now 82% undervalued at their current £11.94 price. So their ‘fair value’ is £66.33.
Will I buy the shares?
Aged over 50 now, I focus on high-yield shares that can pay me a good dividend income. Wizz Air pays no dividend, so it is not for me.
However, its strong earnings growth potential should push its share price much higher over time, I think.
Therefore, I would say it is worth the consideration of those investors whose portfolios it suits.
