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華爾街日報Wizz Air Holdings Plc's (LON:WIZZ) Shares Leap 26% Yet They're Still Not Telling The Full Story
Wizz Air Holdings Plc (LON:WIZZ) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.5% in the last twelve months.
In spite of the firm bounce in price, Wizz Air Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.6x, since almost half of all companies in the United Kingdom have P/E ratios greater than 17x and even P/E's higher than 28x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Wizz Air Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
View our latest analysis for Wizz Air Holdings
What Are Growth Metrics Telling Us About The Low P/E?
Wizz Air Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered a frustrating 22% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 18% each year over the next three years. That's shaping up to be materially higher than the 15% each year growth forecast for the broader market.
In light of this, it's peculiar that Wizz Air Holdings' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
Even after such a strong price move, Wizz Air Holdings' P/E still trails the rest of the market significantly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that Wizz Air Holdings currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Wizz Air Holdings with six simple checks.
If these risks are making you reconsider your opinion on Wizz Air Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.