This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

With its stock caught up in the global sell-off, Jet2 (LSE:JET2) now has a market cap of £2.4bn. However, the FTSE AIM company has an astonishingly strong net cash position of £2.3bn. This is incredibly rare in the aviation sector simply because airplanes don’t come cheap.

The business is valued at just £100m

These figures suggest that Jet2’s business is valued at just £100m. Essentially, the market is attributing minimal value to Jet2’s operating business, including its fleet, infrastructure, and future earnings potential.

Such a valuation is unusual for an airline, especially one like Jet2 that has consistently delivered strong financial performance. For example, the company forecasts profits of £560m-£570m for 2025, driven by expanded operations and increased passenger capacity. 

Additionally, Jet2 owns valuable physical assets, such as airplanes recorded on its books under property, plant, and equipment (£1.3bn) and right-of-use assets (£596m), alongside its growing tour operator segment.

The undervaluation may reflect market concerns about rising costs, competitive pressures from low-cost carriers like Ryanair and easyJet, and delays in aircraft deliveries. However, it has an enterprise value-to-EBITDA (earnings before interest, taxation, depreciation, and amortisation) ratio of just 0.18. That’s far below industry norms, indicating that the stock could actually trade many times higher. To me, it’s clear that Jet2’s stock is being overlooked by investors.

Transition planning

Jet2’s marginally older fleet and transition plan could weigh on the share price, but only a little. Jet2 is investing heavily in fleet modernisation, with a total commitment of 146 Airbus A321neo aircraft, valued at approximately $8bn at base price, though significant discounts have been negotiated. 

Jet2 initially ordering 36 A321neos in 2021, but steadily expanded its order, converting 35 A320neos to the larger A321neo variant for increased capacity. The new aircraft promise 20% greater fuel efficiency and a 50% lower noise footprint, supporting Jet2’s sustainability goals. 

Deliveries are scheduled through 2035, replacing aging Boeing 737s and retired 757s, ensuring operational cost efficiencies and enhanced passenger experience. The capital expenditure cost is actually expected to come in below industry norms for fleet replacement.

Risks and challenges

However, Jet2 faces challenges in the form of rising costs, including an additional £25m annually due to increased National Insurance contributions and higher wages, alongside £20m for sustainable aviation fuel mandates. The airline also risks higher maintenance expenses as U.S. tariffs on imported parts disrupt supply chains, potentially increasing spare part costs by 3%-5% and causing delays. These pressures, coupled with delayed aircraft deliveries and inflationary trends in airport and accommodation charges, threaten profit margins despite robust demand and hedging strategies.

The bottom line

I don’t doubt there are some near-term challenges for Jet2. However, travel demand has been very robust in recent years and there could be opportunities to pass these costs on to customers. The caveat being that Jet2 customers may be more price sensitive than British Airways customers and that the company’s margins are a little thinner. But it’s also worth noting that fuel costs are coming down significantly — as much as 10% last week. This should have a significant impact on costs.

For me, the positives massively outweigh the challenges. I believe it’s significantly undervalued and am continuing to build my position.