We came across a bullish thesis on Ryanair Holdings plc (NASDAQ:RYAAY) on ValueInvestorsClub by Hal. In this article, we will summarize the bulls’ thesis on RYAAY. The company’s shares were trading at $45.88 when this thesis was published, vs. the closing price of $47.79 on Mar 6.
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RYAAY provides scheduled passenger airline services in Ireland, the United Kingdom, Spain, Italy, and internationally. The company is also involved in the provision of various ancillary services, such as non-flight scheduled and Internet-related services, as well as in-flight sale of beverages, food, duty-free, and merchandise; and markets car hire, travel insurance, and accommodation services.
The stock price is down 25% from its peak in April even after a couple of positive earnings surprises in its last two quarters. The company witnessed a 15% and 7% decline in average fare for Q1 and Q2 which has been unfavorably received by investors. A key factor for the drop in price is the low demand OTAs (online travel agents) that prompted RYAAY to drop its fare. In the past OTAs have marked up prices that affected demand but in its latest agreement with OTAs, the mark-up would not be done. The management also expects the demand in the next few quarters to be higher, putting less pressure on pricing.
Comparing it with its peer Wizz, RYAAY has a cost advantage and offers a lower adjusted CASK (cost per available seat KM) based on the numbers for the last three years. The competition between these ultra-low-cost airlines is also low enabling them to operate smoothly without indulging in pricing battles. When a route is defined in terms of two airports, the overlap between these airlines is only 10%. Wizz is concentrated in Central and Eastern Europe while RYAAY majorly operates in Western Europe. Easyjet and IAG can be considered competitors but RYAAR easily has a cost advantage over these operators.
RYAAY has flown 184 million passengers in FY 2024 and expects this figure to reach 300 million by the mid-2030s. The ROCE is also attractive and averages above 20%. The stock currently trades at 15 times its trailing 12-month EPS making it a reasonably priced stock. The order of 300 Boeing 737 Max 10s in 2023 should provide some hint on the trajectory of its business and an increase in market share cannot be discounted.
While we acknowledge the potential of RYAAY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RYAAY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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