Why easyJet is a FTSE 100 stock that still looks seriously cheap
With the FTSE 100 trading close to a record high, investors may be surprised to learn that there are still stocks that appear to be undervalued. easyJet (LSE: EZJ) is one such company, it seeming to have stronger investment prospects than the market is currently pricing-in. This could lead to further share price growth after what has been a successful period.
Of course, there are many other shares across the FTSE All-Share which could provide wide margins of safety. In fact, reporting on Friday was a smaller company that could deliver impressive growth at a reasonable price.
The company in question is ventilation products supplier Volution(LSE: FAN). The stock released a trading update for the financial year to 31 July on Friday which showed that its results will be in line with expectations. Revenue growth during the period was 11.3%, rising to £206 million. This was made up of organic growth of 2.9%, with 8.4% of total growth being as a result of new acquisitions.
The company's organic growth benefited from a stronger performance in the UK. Notably, Residential New Build recorded growth of 13.3%. And despite disruption in its Private Residential RMI segment, it was still able to post growth of 3.3%. International performance was strong, with revenue in the Nordics rising by 19.2% and Central Europe revenue increasing by 3.7%.
Looking ahead, Volution is expected to report a rise in earnings of 10% in the current year. With a price-to-earnings growth (PEG) ratio of 1.4, this suggests that it offers good value for money at the present time. Therefore, while the prospects for the UK economy remain uncertain, its growth potential seems to be high.
easyJet's earnings growth potential also seems to be high, and this could help its share price to beat the FTSE 100. The company's bottom line is expected to rise by 44% in the current year, followed by additional growth of 18% next year. This is despite potential risks from a rising fuel price, as well as weak consumer confidence that has been present in the UK in recent months. And with it trading on a PEG ratio of 0.7, it seems to be cheap on a relative basis.
With easyJet set to outperform sector peers regarding its financial performance, its share price could do likewise. The company has been growing passenger numbers, as well as becoming more efficient. Its business offering has proved popular, while M&A activity could prove to be an added catalyst for its top and bottom lines.
easyJet may also become an increasingly popular income share for FTSE 100 investors. The company's dividend is expected to rise by 26% next year so that it yields around 4.3%. This would make it a higher-yielding stock than a wide range of FTSE 100 shares. And with dividends due to be covered twice by profit, they seem to be highly sustainable. As such, the total return potential of the stock seems to be high.
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Peter Stephens owns shares of easyJet. 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.