How can you tell if a stock is good or bad?
I’ve got a question for you. Which airline carries more international passengers than any other?
No, it’s not one of the US majors. Sure, they complete a lot of flights but are mainly domestic. What about Emirates from Dubai? Or Lufthansa from Germany? If you guessed those you’d be close, but wrong again.
The largest international airline by number of passengers is actually the Irish budget airline, Ryanair. In 2017 alone they carried a whopping 129 million passengers across international boarders, roughly twice as many people as the population of the UK. This number is staggering when compared to other airlines. Easyjet, who came in second, carried only 55% as many passengers abroad. The US’s largest international carrier, American Airlines, carried a mere 27 million passengers across country lines — though again, most of their business is domestic.
So the question for us: do they make the world a better or worse place to live? Are they sustainable or unsustainable? Is Ryanair a good guy or a bad guy?
A 60-second stock analysis
First, let’s take a quick look at their stock price. Currently trading on the NASDAQ at around $110, RYAAY has a market cap of roughly $23bn and a PE ratio (read: if you bought 1 share and collected their profit per share every year, how many years would it take to get your money back?) of 15. In comparison, EasyJet also has a PE ratio of 15 but Lufthansa has a PE ratio of 4. That makes sense: Lufthansa is considered a long term value stock which Ryanair and EasyJet are considered high-growth stocks. All data from Yahoo Finance and as of time of writing.
So is Ryanair a BUY? Of the 25 professional investment analysts that cover RYAAY, 12 rate the stock a strong buy and only 3 currently recommend to sell the stock. But this is all based on price expectations. This has nothing to do with sustainability.
To figure out if Ryanair is a good guy or a bad guy when it comes to sustainability let’s dive into the company’s history.
Tracking Ryanair’s rise over the last few decades reveals meteoric growth. Born in 1984, Ryanair was founded with just one 15-seat jet flying between Ireland and London. The company had the noble aim of disrupting the existing duopoly that was shared at the time by Aer Lingus and British Airways.
Over the next 30 years, CEO Michael O’Leary aggressively transformed Ryanair into an aeromotive powerhouse. After floating its shares on the NASDAQ in 1997, Ryanair placed an order to buy 45 brand new Boeing 737s — more than tripling the number of aircrafts that they owned.
It is because of this aggressive pursuit of growth that they have grown from humble beginnings to being the world’s largest international carrier in only three decades.
It is also because of this devotion to growth and profit that Ryanair has growth to be Europe’s worst polluting airline emitting over 9.2 million tonnes of carbon dioxide in 2017 alone: the equivalent of two million cars on the road.
So Ryanair is starting to sound like a bad guy… but not so fast. Their aggressive growth has been paired with a clear habit of prioritising both the firm’s customers and employees.
Back in the early 1990s, O’Leary was inspired by American carrier Southwest Airlines to make Ryanair into a budget airline. He famously said: “The other airlines are asking how they can put up fares. We are asking how we could get rid of them.” Ryanair has since become synonymous with cheap fares and reliable flight times. On the employee side, Ryanair generously gave shares to every single one of their workers when they first issued stocks in 1997.
And are they environmentally conscious? Ryanair recently launched their new ‘Environmental Policy’ which includes how they have promised to become ‘plastic free’ on all flights in the next 5 years.
“Life is not black and white — there is some grey nuance to it” — Actor Pilou Asbæk
Clearly the question of whether a company is sustainable is not black and white. There is nuance. And this nuance is not currently captured by looking at a stock price. If you are using your conscience and decide to invest in companies that are contributing to make the world a better place, then you need another measure of performance besides the stock price.
Enter the Sustain Price.
I believe in taking a different approach to valuing companies. I believe that the company’s stock price is just one variable to use when deciding if a company deserves your hard earned cash. To create the multi-dimensional view that reality requires, you need to include analyses of every issue that relates to every firm. And you need to include the perspective of everyone who is affected by this issue.
Every issue relating every company that affects anyone — considered from all perspectives? That sounds like an impossible task. I believe it is an impossible task, for one expert alone. A single expert likely has an informational advantage on a small number of topics, and this may qualify her to speak accurately on those topics. But often experts make mistakes when they step outside of their core competencies.
What’s more, the impact of these mistakes is magnified by two common fallacies: that experts are often believed without criticism (just because they have impressive credentials) and that experts often act as if their mastery of one topic transfers to all subjects that they attempt.
Trust the many, not the few
When it comes to making sustainable investments:
At Sustain, we don’t put the decision making power in the hands of experts, we put the decision making power in the hands of the crowd.
At Sustain, the community discusses the pivotal issues that relate to each public company and votes on how each issue affects that company.
At Sustain, we have created the Sustain Price using both the public stock price and the results of how the community has voted on each issue that relates to that firm.
We are building a new way of valuing public companies that is multi-dimensional, taking into account not only a company’s expectation of future profits but also their impact on the world.
Does your company make the world a better place?
More to come.
Call to Action
Do you have any thoughts on anything discussed here? Does anything anger you? Excite you? Bore you? Let me know your uncensored reactions in the comment section below. And seeing that you’re reading this far — don’t forget to long-click the applause button on the left!
