Investors Don't See Light At End Of Wizz Air Holdings Plc's (LON:WIZZ) Tunnel

When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 17x, you may consider Wizz Air Holdings Plc (LON:WIZZ) as a highly attractive investment with its 5.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Wizz Air Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Wizz Air Holdings

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Is There Any Growth For Wizz Air Holdings?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Wizz Air Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 15% gain to the company's bottom line. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 9.1% each year over the next three years. That's shaping up to be materially lower than the 13% each year growth forecast for the broader market.

In light of this, it's understandable that Wizz Air Holdings' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Wizz Air Holdings' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Wizz Air Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Wizz Air Holdings that we have uncovered.

You might be able to find a better investment than Wizz Air Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.