Wizz Air (LSE: WIZZ) shares have taken a big hit recently. A year ago, the airline operator’s share price was around 4,700p. Today however, it’s below 1,700p.
Is this a good opportunity to buy the airline stock for my portfolio? Or are Wizz Air shares a risky bet right now? Let’s take a look.
Revenues are rising
Wizz Air’s half-year results, posted this morning, showed that the company is making a good recovery after the pandemic.
For the six months to 30 September, the company reported:
- Passengers carried at 26.5m were up 112% year on year
- Revenue of €2,194m, up 149% year on year, and up 31% on the same period pre Covid
- EBITDA of €218m, up 33% year on year
The results weren’t perfect though. Unfortunately, Wizz Air’s profitability for the period was hit by both rising fuel costs and the strong US dollar. As a result of these issues, the company posted a loss of €384m versus a loss of €121m a year earlier.
On the plus side, however, management said that operational performance has normalised recently and that cancellations and flight disruptions are now back at low levels (it set a new company record for flights operated in a single day in early September).
It also said that it’s gearing up to operate at roughly 35% higher capacity in the second half of the year compared to H2 2019 (normalised for the Covid impact in February and March 2020) and that in April 2023 it will return to the systematic hedging of jet fuel.
I see this outlook as quite encouraging. It leads me to believe theres potential for a rebound in the share price at some point in the future.
Insiders have been buying stock
Another thing that I find encouraging here is that there has been some substantial insider buying lately.
In July, for example, Chairman William Franke (who’s the founder and Managing Partner of a private equity fund that’s focused on air transportation) bought 100,000 WIZZ shares at a price of £19.01 each. This purchase cost the insider around £1.9m.
That’s a large purchase, which suggests the Chairman is very confident Wizz Air’s share price will rebound.
Risks to consider
There are quite a few risks that could put pressure on the share price in the short term, however.
In the H1 results, Wizz Air mentioned macroeconomic uncertainty on several occasions. Right now, a lot of consumers are struggling to make ends meet. As a result, they may cut back on trips abroad going forward.
Debt is also an issue to consider. At 30 September, Wizz Air’s borrowings amounted to €4.5bn. This could present challenges in a rising-interest-rate environment.
Finally, the Russia-Ukraine war could continue to have an impact on the company’s momentum.
Are the shares worth buying?
Weighing this all up, I’m happy to leave Wizz Air shares on my watchlist for now.
I think there’s potential for a rebound in the share price at some stage. However, the high level of debt here increases risk significantly.
All things considered, I feel there are safer stocks to buy for my portfolio today.
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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.