Ryanair Holdings plc (RYAAY): A Good Airline Stock To Buy According To Short Sellers

We recently compiled a list of the 10 Best Airline Stocks To Buy According To Short Sellers. In this article, we are going to take a look at where Ryanair Holdings plc (NASDAQ:RYAAY) stands against the other airline stocks.

The COVID-19 pandemic’s impact on travel caused 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 subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.

On the other hand, the Business Research Company projects 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. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government’s Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose 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 it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.

Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.

Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: “Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry’s projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.

Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry’s revival and expansion in the future years.

Methodology:

We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We’ve also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

A Boeing 737 aircrafts parked in an airport terminal with passengers awaiting to board.

Ryanair Holdings plc (NASDAQ:RYAAY)

% of shares shorted: 3.93%

Number of Hedge Fund Holders: 20

The Ireland-based Ryanair Holdings plc (NASDAQ:RYAAY) offers scheduled airline services throughout Europe and beyond, in addition to ancillary services like in-flight shopping, rental car services, and travel insurance. It was founded in 1996 and provides a range of travel-related services through a web page and mobile application, in addition to handling and maintaining planes.

The biggest loss in shares since 2016 occurred when Ryanair’s Q1 2024 profit dropped 46%, underperforming estimates year over year. Michael O’Leary, the CEO, issued a warning about the ongoing deterioration in prices, predicting double-digit decreases in Q2 2024.

However, Muneeba Kayani, an analyst at Bank of America Securities, has reiterated her positive view on the airline services company by keeping a Buy rating. This assurance comes from Ryanair’s deliberate focus on gaining market share with its “load active, yield passive” strategy, even in the face of a notable year-over-year decline in first-quarter fares. Kayani believes that even in times of low consumer demand, this aggressive approach to securing market share will pay off in the long run.

Ryanair has projected that it will carry between 198 million and 200 million passengers by FY25, confirming its commitment to its expansion strategy. Kayani sees solid cash flows and predicted above-average earnings growth from FY24 to FY29 as the main drivers for a higher target P/E multiple, despite a downward revision in FY25 net income expectations.

Conventum – Alluvium Global Fund stated the following regarding Ryanair Holdings plc (NASDAQ:RYAAY) in its Q2 2024 investor letter:

“Ryanair Holdings plc (NASDAQ:RYAAY) (down 22.3%) released solid full year results, generally in-line with expectations. The only negative was the continued Boeing delivery delays (impacting passenger growth forecasts). To the positive, demand remains strong, the Pratt & Whitney engine issue continues to affect competitors, and industry consolidation is helping fare momentum. Ryanair has grown capacity by 36% since the pandemic, whereas almost all competitors are at lower levels. Management has demonstrated confidence with the EUR 700m buyback and the dividend being declared. There was no need for us to revise our assumptions, so our view of maintainable earnings and valuation are unchanged. As the share price fell further below our valuation, we took the opportunity to increase our holding which now stands at 4.6% of the Fund.”

With a strong balance sheet and the ability to support share buybacks with free cash flow, Ryanair Holdings plc (NASDAQ:RYAAY) has sound financial standing and a positive future.

It is the Best Airline Stocks To Buy According To Short Sellers and analysts have collectively rated the stock as a “Buy.” The average price objective of $158.5 indicates a possible gain of 49.90% from the current stock price of $105.74.

Overall RYAAY ranks 2nd on our list of the best airline stocks to buy according to short sellers. 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 is originally published at Insider Monkey.