Why the easyJet share price could be set to surge past the FTSE 100
The outlook for the easyJet (LSE: EZJ) share price may be relatively mixed at the moment. The airline sector could be hurt by the rising oil price, as well as an uncertain outlook for the industry ahead of Brexit.
However, the company continues to offer a relatively low valuation, which suggests that the stock market has taken into account the risks that it faces. This could help it to outperform the FTSE 100 over the long run. As such, it could be worth buying now alongside another growth stock that reported upbeat results on Friday.
Strong performance
That company is specialist staffing business SThree(LSE: STHR). It released a positive third quarter update, which showed the positive momentum experienced in the second quarter has continued. Its group gross profit has risen by 13%.
It delivered strong growth in Continental Europe, where growth of 24% was recorded, while is US growth rate was 8%. It was able to perform well across its various divisions, while a restructuring of its UK operations has the potential to boost its medium-term performance.
With 84% of the company’s gross profit now generated outside of the UK, the impact of Brexit may not be significant on its bottom line. This could help to reduce its overall risk and may mean that it’s able to command a higher valuation.
Looking ahead, SThree is forecast to post a rise in earnings of 8% this year, followed by further growth of 16% next year. It has a price-to-earnings growth (PEG) ratio of just 0.8, which suggests that it could offer good value for money. As such, now could be the right time to buy it for the long run.
Resilient business
As mentioned, the outlook for easyJet may be relatively uncertain at the present time. A higher oil price could push costs across the industry higher and may lead to less competitive pricing. In turn, this could hurt demand – especially among budget operators. Brexit also poses a potential risk, with uncertainty about how smooth a ‘no-deal’ process would be for airlines that operate across the UK and Europe.
Despite these threats, the stock is performing well. It’s been able to deliver relatively strong passenger growth in recent quarters and this is expected to boost its financial performance over the next few years.
In the current financial year, easyJet is forecast to post a rise in its bottom line of 45%. This is due to be followed by further growth of 17% next year, which suggests that it has a bright future from a financial perspective. Despite this, it trades on a PEG ratio of just 0.6, which suggests it offers a wide margin of safety at the present time. This could mean it has a favourable risk/reward ratio, and may deliver a stronger performance than the FTSE 100 over the long term.
You Really Could Make A Million
Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".
The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.
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.
///>
