Ryanair Holdings (NASDAQ:RYAAY) is something of an anomaly in air travel. An ultra-low-cost carrier in Ireland, its focus on super-cheap travel puts it ahead of several other airlines, at least on some fronts. The company surged 6.2% in pre-market trading today, but those gains have since dwindled. Ryanair’s jump is connected to one key point: record profits. The company’s after-tax profits reached €1.37 billion (roughly $1.369 billion) for the six-month period that ended in September.
That’s not only a level not seen since before the pandemic, but it’s also a new record. The previous record was €1.15 billion seen back in 2019.
The biggest reason for the surge was a combination of two critical factors: higher prices for tickets and massive travel demand. The jump in prices allowed Ryanair to fend off the worst impacts of inflation and supply-chain problems, while the surge in demand gave Ryanair a boost.
Ryanair is flying high right now, and with good reason. However, this trend isn’t likely to continue much longer, as one of its key supports—surging travel demand—can’t keep going forever. I’m neutral on Ryanair and on most travel stocks as well. The news is great today, but this party will end eventually.
Is Ryanair Stock a Buy, According to Analysts?
Turning to Wall Street, Ryanair has a Moderate Buy rating. That’s based on one Buy assigned in the past three months. Ryanair’s price target of $102 implies 45.99% upside potential.
Meanwhile, Ryanair has a Smart Score of 6 out of 10 on TipRanks. That’s just slightly above the scale’s midpoint, suggesting a slightly better than even chance that the company will ultimately outperform the broader market.
The real positive is hedge fund involvement, where funds collectively added 804,000 shares in the last quarter. That puts hedge funds in a “very positive” state around Ryanair.
Also, revenues have been on the rise for the last two quarters, and in the April – June corridor, Ryanair posted a before-tax profit of €203 million. That was its first profitable spring period since the pandemic.
The Party Can’t Last Forever
The good news for Ryanair is that, in the short term, things are likely to continue going well. The company noted that there were “strong forward bookings into Christmas.” Moreover, the company also noted that the strong dollar is encouraging American travel abroad. With Europe disabling a lot of its COVID-19-related restrictions, that’s encouraging Asians to hop flights as well. However, even Ryanair admits this kind of thing likely won’t go on forever.
The competition, Ryanair noted, is cutting capacity frantically. Higher oil prices are hurting their ability to grow, and fares are likely to rise another 5% to 10% in response.
The problem here is that most of this is connected to a phrase that was popular in the very last days of the Trump administration: pent-up demand. Basically, travel is seeing a massive surge now because, for the first time in almost two years, people can actually travel effectively.
Sure, tourists could have traveled for much of the last two years, but once they reached their destination, they would have found it mostly shut down by various COVID-19 restrictions. Worse, automatic quarantine measures might have forcibly cut vacations short upon travelers’ arrival.
Now, tourists can have a largely normal travel experience again. Largely, of course, this assumes some supply-chain meltdown hasn’t destroyed some critical part of it. Then there’s the specter of an economic downturn hanging over the collective market.
Ryanair is whistling past the graveyard, as revealed by statements from CEO Michael O’Leary. O’Leary noted that concerns about a recession and price hikes “have been greatly exaggerated in recent months.” Though the company is having little in the way of labor troubles right now, the notion that travelers will continue to travel might be going just a bit too far.
Conclusion: Great Today, Gone Tomorrow
Taking all the factors into consideration, Ryanair’s long-term future doesn’t look perfect. Ryanair clearly has hedge funds’ attention. Little analyst perspective, however, offers a red flag in its own right. The company is trading well below its price target, however, and that could make some investors interested. Ryanair is, at this stage, depending on pent-up demand to remain brisk. If travel demand starts to fall off, the way the macroeconomic picture suggests it should, Ryanair will likely go down with it.
Since I don’t expect pent-up demand levels to continue at that level forever, I’m neutral on Ryanair and most travel-related stocks. The news is great today, but good news may not last much longer for Ryanair.