Jet2 plc: A Hidden Gem in the Rebounding Travel Sector

The travel and leisure industry is roaring back to life post-pandemic, and Jet2 plc (LSE: JET2) stands out as a compelling opportunity for investors seeking undervalued growth. With a robust financial foundation, a focused strategy on leisure travel, and valuation metrics that lag behind peers, Jet2 offers a rare blend of affordability and structural advantages in a sector poised for sustained recovery.

Valuation: A Bargain in a High-Flying Sector

Jet2's current valuation metrics paint a picture of an overlooked stock. Its trailing twelve-month (TTM) P/E ratio of 8.57 (as of July 2025) sits below the sector average and significantly below peers like easyJet (LSE: EZJ) at 8.95 and Hollywood Bowl Group (LSE: BOWL.L) at 14.15. Meanwhile, its market cap of $5.18 billion has surged by 46.79% over the past year, yet remains 36% lower than easyJet's $4.05 billion and 23% below Wizz Air's $1.13 billion, despite comparable revenue growth.

This undervaluation is puzzling given Jet2's strong performance. In 2023, the company reported £5.03 billion in revenue and £290.8 million in net income, with 2024 earnings per share (EPS) of £2.05. Analysts' consensus “Buy” rating (average 3.00/5) further underscores its appeal. However, the dividend yield of 1.04% is tempered by an unsustainable payout ratio of 882.35%, signaling a need to prioritize capital reinvestment over dividends. Investors should view this as a temporary trade-off for growth, especially as the company executes its £250 million share buyback program, announced in April 2025, which could amplify EPS and shareholder value.

Structural Advantages: A Niche Leader in Leisure Travel

Jet2's dual subsidiary model—Jet2.com (low-cost airline) and Jet2holidays (UK's largest package holiday provider)—creates a powerful synergy. Together, they dominate the leisure travel market, offering bundled flights, accommodation, and activities to over 75 destinations in Europe. This integration reduces customer acquisition costs and boosts loyalty, a key competitive edge in a fragmented sector.

The airline's operational flexibility is another strength. With bases at 10 UK airports and three overseas hubs, Jet2 can quickly adjust capacity to demand, a strategy that helped it rebound faster post-pandemic. In 2024, it expanded to Liverpool John Lennon Airport, adding 200,000 annual seats—a move that could boost revenue by £15–20 million annually.

Risks and Considerations

While Jet2's fundamentals are strong, risks remain. The high payout ratio suggests caution: maintaining dividends may strain cash reserves if fuel costs or labor disputes escalate. Additionally, the travel sector's recovery hinges on macroeconomic stability; a recession could dampen leisure spending.

Investment Thesis: Buy the Dip, Position for Recovery

Jet2's valuation is a clear entry point for investors. With a P/E ratio 13% above its 10-year average but still affordable relative to peers, the stock offers asymmetric upside as leisure travel normalizes. The share buyback program and geographic expansion plans further justify optimism.

Recommendation:
- Buy: For investors with a 1–3 year horizon, Jet2's valuation and structural advantages make it a strong buy.
- Hold: For those seeking immediate income, the dividend's unsustainability may warrant patience.
- Avoid: If macro risks materialize, consider hedging with sector ETFs like IYH or XLY.

Conclusion

Jet2 plc is a rare gem in the travel sector—a company with a focused strategy, resilient financials, and a valuation that lags its peers. As leisure demand surges and the buyback program takes effect, this could be one of the best stories in value investing this year.

Disclosure: This analysis is based on publicly available data. Always conduct your own research before making investment decisions.