Airlines company Ryanair is standing out today, surging to $46.54 and marking a 5.6% change. In comparison the S&P 500 moved only 1.0%. RYAAY is -12.52% below its average analyst target price of $53.2, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Ryanair has underperfomed the S&P 500 by 22.7%, moving 7.7%.
Ryanair Holdings plc, together with its subsidiaries, provides scheduled-passenger airline services in Ireland, the United Kingdom, Spain, Italy, and internationally. The company is a consumer cyclical company, whose sales figures depend on discretionary income levels in its consumer base. For this reason, consumer cyclical companies have better sales and stock performance during periods of economic growth, when consumers have more of an incentive to spend their money on non-essential items.
Ryanair's trailing 12 month P/E ratio is 24.2, based on its trailing EPS of $1.92. The company has a forward P/E ratio of 12.5 according to its forward EPS of $3.71 -- which is an estimate of what its earnings will look like in the next quarter.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US consumer discretionary companies is 22.6, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
RYAAY’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.
When we perform the calculation for Ryanair, we obtain a PEG ratio of 2.51, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
Ryanair's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 6, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Discretionary sector, which stands at 3.19 as of the third quarter of 2024.
With an average P/E ratio, a higher than Average P/B Ratio, and No published cashflows with an unknown trend, we can conclude that Ryanair is probably fairly valued at current prices. The stock presents mixed growth prospects because of its strong operating margins with a stable trend, and an above average PEG ratio.
