If you are lucky enough to have $10,000 burning a hole in your pocket and no immediate use for it, then it could be worth putting it to work in the share market.
After all, with an average annual return of 10% per annum, the share market has historically been a great place to put excess cash and grow your wealth.
A popular option for investors in the past has been Qantas Airways Limited (ASX: QAN) shares.
And while the last 12 months have been underwhelming, could the next 12 months be better for investors? Let's see what a $10,000 investment in the airline operator's shares could become if you were to buy at current levels.
Investing $10,000 into Qantas shares
With the Qantas share price currently trading at $6.27, with $10,000 (and an extra 65 cents) you would be able to pick up 1,595 units.
Let's see what they could be worth this time next year.
According to a note out of Goldman Sachs, its analysts have a buy rating and $8.05 price target on the Flying Kangaroo's shares.
This means that if the company's shares were to rise to that level, your 1,595 shares would have a market value of $12,839.75. That's a return of greater than 28% or $2,800 on your original investment.
Will there be any dividends? Goldman doesn't believe that there will be any payouts to shareholders in FY 2024, but it is expecting them to resume in FY 2025. This means that between now and this time next year there will be an interim dividend paid out.
Goldman is currently forecasting a 30 cents per share dividend for the full year. If we imagine this means an interim dividend of 15 cents per share, then a $10,000 investment would generate dividends of $239.25. This boosts the total 12-month return to $3,079 or almost 31%.
That's triple the historical annual return of the market. Not bad!
Why should you invest?
Goldman thinks that Qantas shares are undervalued at current levels. This is particularly the case given its positive outlook and the transformation of its business. It explains:
Qantas Airways is the flagship carrier of Australia and is the largest airline in Australia by capacity share, serving destinations domestically and internationally. As a key beneficiary of the re-opening of the world post-COVID, we expect the airline's traffic capacity to return to 95% of pre-COVID levels by FY24e, with the airline's earnings capacity (EPS) expected to exceed that of pre-COVID levels by ~52%. We forecast a ~24% FY19-24e cumulative uplift in unit revenues (c. 4.4%pa), and ~50% drop-through of QAN's A$1bn+ structural cost-out program. QAN's current market capitalisation and enterprise value are 10% below and 11% below pre-COVID levels. As such, we believe QAN is not priced for a generic recovery, let alone prospects for improved earnings capacity. We continue to see upside associated with substantially improved MT earnings capacity.
