Is Ryanair Overbought? Earnings Say Not Likely

Key Points

• Ryanair stock is trading lower by nearly 10% during Monday's pre-market session, a fatal reaction that comes after the company's release of its first quarter 2024 earnings results. 
• Price action relative to the S&P 500 would beg to differ from short-term adverse reactions, suggesting that some sector (and company) favoritism is concentrated in the space. 
• Ryanair is the winning stock within this industry; as these valuation metrics will show, analysts are also placing the stock front and center. 
• Management quickly leaves behind a massive advance in financials shown in quarterly figures. It focuses on further growth drivers ahead, justifying momentum towards a new all-time high price.

A word of warning for investors holding shares in Ryanair NASDAQ: RYAAY, with high potential upside, comes high potential volatility. Shares of the European airline are down by as much as 9.6% during the pre-market hours of Monday morning, an initial sign of disapproval from markets. 

As the company releases its first quarter 2024 earnings results, some participants may be finding enough reason to sell the stock despite what seems to be more than reasonable growth across the board. Today's decline is, however, only a shadow of the massive rally investors enjoyed in 2023. 

As investors get in the weeds (simplified here) of earnings, it will become evident that the unjustified dip in the stock price only presents a value opportunity. When the picture is zoomed out from today's events, Ryanair is within the top five preferred airline stocks.

Winning Industry, Industry Winner 

During the past twelve months, virtually every airline stock has delivered a decent chunk of returns to investors, considering that the U.S. Global Jets ETF NYSEARCA: JETS has outperformed the broader S&P 500 by as much as 11% during the period. Showing the first signs of sector favoritism for investors to begin further diligence for a winning investment. 

Ryanair has further outperformed the market by a staggering 35.3% during the same twelve months, taking the spotlight as a clear winner. Will the stock have enough fuel left in the tank to make it another twelve months? Considering broader market perceptions relative to competitors can help investors understand where the smart money is betting.

Companies like Delta Airlines NYSE: DAL and Southwest Airlines NYSE: LUV are the other two at play here, showcasing symptoms of favoritism by broader investor bases. Delta and Ryanair have taken the bulk of returns on a price-action basis. At the same time, Southwest has fallen behind significantly, so the focus will remain on the two international players.

Ryanair analyst ratings point to a 19% upside from today's prices, a ceiling not yet reflective of the near 10% dip. Meanwhile, Delta analyst ratings only see a 17% potential target from today. The tiny - though precious - difference between these two targets can only be attributed to the financials driving Ryanair today.

Regarding financials, especially future expectations, investors should note that the room for growth lies in Ryanair rather than Delta. Considering a forward price-to-earnings ratio rather than the traditional P/E can help investors gauge where the perceived 'growth' lies.

Fasten your Seatbelts 

Ryanair stock trades at a 10.2x forward P/E, above Delta's 6.4x. Before the value investing crowd begins to withdraw, thinking that this only makes Ryanair the more 'expensive' choice, check this out. Markets are willing to pay more of a premium for each dollar of future earnings in Ryanair instead of Delta; shouldn't that say it all?

Being forward-looking, markets may be seeing today's earnings trends as a continuation of a more extensive expansion in the underlying financials, therefore bringing the comfort of 'overpaying' for the stock. Double-digit growth rates are the catch of the day.

As Ryanair's press release will show, revenue grew by as much as 40% during the past twelve months, a massive feat considering the average growth rates in the sector. Moving down the headlines, earnings per share more than doubled from 16.53 Euros a year ago to 58.22 Euros today, delivering a 252% annual advance.

Oddly, the main stock price driver, EPS, was up by such a staggering percentage, while the stock did not even double during the year. Perhaps these analyst targets are falling on the conservative side of the spectrum—other critical drivers in the business point to a new potential all-time high price in the works.

The earnings presentation says it all. Ryanair grew market share in virtually every country they operate within, and management also pointed to further fleet expansion and 'modest growth' in volumes and fares coming for the year's second half. Management is looking to increase the total fleet from 537 total aircraft in 2023 to a total of 652 by 2027, aspiring for a 21% increase in capacity.

Ryanair stock is reaching a substantial resistance range of $115 to $125 per share; however, these ceilings are being challenged by an even stronger uptrend channel. A rise that started in the second half of 2022 has kept the stock's momentum alive and heating by the week, creating a tight channel accompanied by rising momentum indicators.