Is Ryanair (OTCMKTS:RYAAY) the worst stock investors can buy? Of course not! But there are plenty of other names to consider over Ryanair stock, even in the same industry.
A Closer Look at Ryanair Stock
The problem with Ryanair? For starters, it’s not the most well-known airline company to investors. Not that the U.S. is the only country with investors, but names like Spirit Airlines (NYSE:SAVE), Delta Air Lines (NYSE:DAL), United Continental (NYSE:UAL), American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV) are much more familiar.
Second, this is not an expensive group of stocks. Not long ago, I wrote a piece looking at the four best airline stocks to buy. Each name on the list had positive earnings growth, while three of the four had a current price-to-earnings (P/E) ratio in the single digits.
That’s not the case with Ryanair stock. Currently, RYAAY stock trades at about 15.3 times this year’s earnings. While estimates call for 8.7% revenue growth this year and 11% growth next year — which is better than all of the companies on our linked list above — the 10.5% expected earnings decline this year is worse than all of them.
While expectations call for an impressive rebound in 2019 of 14% growth, that’s also below all four stocks we previously examined. Finally, Ryanair stock doesn’t pay a dividend, while three of the four others do.
To sum it up: the revenue growth is superior, but earnings growth is not. The valuation is higher and the yield is lower. This spells “pass” in my book, as long as I’m looking to buy stocks in this industry.
As for the charts, RYAAY stock is doing anything but taking flight. This $94 level is acting as decent support, while $100 to $102.50 is likely resistance. Should support fail, the next significant level is down near $87.
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Delta Air Lines
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Our favorite pick from the linked article above remains Delta. At the time, shares were trading near $50, while range resistance was near $56. After pushing through resistance, DAL stock topped out near its prior high, around $60. Aggressive bulls can justify a position now just below $58. Patient bulls will wait for another retest of prior resistance at $56, which successfully held as support earlier this month.
After the rally, shares trade at just 10.3 times this year’s earnings. Expectations call for 13.2% earnings growth this year and an acceleration to 19% growth in 2019. On the revenue front, analysts expect 7.5% growth this year and 4.6% growth in 2019. As earnings growth outpaces revenue growth, it’s clear that margins are set to expand over the next 18 months.
With a PEG ratio of just 0.62, solid profitability and impressive growth, it’s clear that DAL stock is pretty darn cheap. Shares pay out a 2.5% dividend yield — hardly a negligible mark. Finally, management remains quite committed to returning plenty of cash to shareholders, given the company’s impressive cash-flow generation.
Southwest Airlines Over RYAAY Stock?
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Should you buy LUV stock over RYAAY stock? Most signs point to yes. We were watching LUV stock near $50 to see if support would hold and whether it would break out of its downtrend. Both came to fruition and even though LUV stock is now at $62, I would rather bet on a stock with the wind at its back than on one that’s struggling to take off.
Shares are doing a nice job consolidating around the $62 level, but a slight pullback to $60 is more attractive. Prior resistance should come into play as support, while the 50-day moving average should help as well.
At this mark, LUV stock will yield about 1.1% and trade at 14.4 times this year’s earnings. While those marks may not be all that impressive, Southwest is doing better than its peers like AAL and SAVE. And while its valuation is among the highest in the group (but still lower than RYAAY), LUV boasts expectations for 19% earnings growth this year and almost 22% next year.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
