Jet2 (LSE:JET2) stock just keeps getting cheaper, driven by broader macroeconomic concerns as Trump’s tariffs sink markets. With £2.3bn in net cash and a market cap around £2.5bn, the company is looking exceedingly cheap. In fact, I believe this could be the cheapest UK stock.
The Trump impact
Jet2 has been underappreciated for some time. However, the stock has also been swept up in the broad sell-off. The share price is now down 5% over the week and 10% over the month. Jet2 isn’t directly exposed to the tariffs, but it could face secondary pressures owing to economic distress and downturns.
While the Leeds-based firm primarily operates within Europe, the interconnected nature of the global economy means that weakened confidence and potential disruptions in supply chains could indirectly affect its operations. For example, higher costs for aircraft parts or maintenance services — some of which may be sourced internationally — could add to the carrier’s already mounting cost pressures.
Falling fuel prices
On Friday 4 April, oil prices fell to their lowest level in three years. And that’s important because jet fuel prices typically follow. Aviation fuel accounts for around 25% of operational costs across the sector. And while Jet2 practices fuel hedging — it buys fuel at fixed prices to reduce exposure to spot prices across future quarters — small changes in fuel prices can make a big difference. This is, potentially, a positive outcome from Trump’s market-crashing policies.
The valuation is exceptional
I thoroughly appreciate that Trump’s tariffs, albeit 10%, could damage consumer confidence, and Jet2’s margins are already relatively thin compared to more premium parts of the travel market. However, I simply cannot ignore the company’s valuation.
The stock’s enterprice value-to-EBITDA ratio is now 0.45 times. That’s phenomenally low. In fact, peers like IAG trade six times higher than that. Does this mean that Jet2 should be trading six times higher? Not exactly. Its margins are thinner and its fleet older. But it’s an indication that this stock is massively undervalued.
Just to bang home this point. Jet2’s enterprise value is currently around £300m. But the company’s net income for the year is forecasted at £431m. That would suggest an adjusted price-to-earnings (P/E) ratio under one. It’s simply unheard of.
Transition planning
I believe Jet2 is overlooked. However, the transition of its fleet from a Boeing-centric one to Airbus may weigh on the stock somewhat. The company is planning to increase its fleet size from 135 to 163 by 2031, spending £833m annually in the process. While this may sound like a large figure, it aligns with industry norms. Airlines typically spend about 12% of revenue on capital expenditure, and this £833m is around 11.4% of projected sales for the upcoming year.
In the long run, I’d expect this transition and enlargement plan to pay dividends. The fleet will become more efficient as it moves towards the A321neo and there are supportive trends for further seat expansion. I’m continuing to buy this stock.
This post was originally published on Motley Fool
