Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models

Jet2 (LSE:JET2) is a FTSE AIM stock. This means it’s listed on the Alternative Investment Market rather than the main London Stock Exchange — a distinction that matters to some institutional investors, as certain funds are restricted from holding AIM-listed companies.

In additions to several benefits for the company (although I understand the benefits are becoming fewer), AIM-listed shares are exempt from stamp duty on purchases — saving investors the standard 0.5% charged on main market stocks.

So why am I interested in Jet2? Let’s dig in.

Momentum scores are poor

Jet2 is currently languishing near three-year lows. The stock looked cheap at the start of the year, and then President Trump took out Venezuela’s Nicolás Maduro — which temporarily pushed oil and aviation fuel prices higher, before launching a campaign against the Iranian regime, which has pushed them higher still.

Rising fuel costs are a direct hit to airline margins, and with no sign of geopolitical tensions easing, the market has punished the stock accordingly. Remember, fuel prices can represent up to 35% of operational costs.

When stocks fall, their ‘momentum rating’ does too. It’s quite simple when you think about it. These ratings are usually a part of quantitive analysis. Positive momentum coupled with strong fundamentals (valuation, profitability) are often a sign that a company could realise its fair value or more, sooner rather than later.

A little bit of optimism

Personally, I like to make sure I’m investing and not betting. But sometimes that isn’t always possible. On this occasion I already have Jet2 shares and I’m not willing to be rid of them.

So, the optimism. First, European airlines hedge their fuel needs. Jet2 has maintained a strong fuel hedging position, with over 75% of its jet fuel requirements for the financial year ending March 2027 (FY27) already hedged. That really limits the company’s exposure to what’s going on with fuel prices right now.

Then there’s the war itself. The US doesn’t seem to have an appetite for a protracted conflict. Prediction website Polymarket suggests a ceasefire before the end of June is likely. Things, of course, could move faster or slower. But in short, we can see that Jet2 is well hedged long after the most likely conclusion of the war.

We have to accept this is speculating to some extent. But if the war ends, fuel prices will moderate quickly, and aviation stocks will likely rise. That is positive momentum.

The rating change

So, let’s go back to this idea of quantitive analysis and quantitive scores. In short, a simple quantitive rating will be influenced by things like valuation, quality/profitability, revisions, and momentum.

Jet2 scores really well on valuation. It’s got a rock-solid balance sheet and trades at a huge discount to its peers. It’s also something of a quality pick with a leading position in the market.

However, momentum has been sorely missing, and earnings revisions (when analysts update their earnings expectations) are unlikely to have been positive recently. This part of the equation could change if the war ends.

And in short, that’s why I think Jet2 is worth considering. It could become a very well-rated quantitive stock.

The post Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models appeared first on The Motley Fool UK.

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James Fox has positions in Jet2 Plc. The Motley Fool UK has recommended Jet2 Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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