Image source: Getty Images
He easyJet (LSE:EZJ) share price had the worst performance in the entire FTSE 100 last month, falling 14.21%.
Fortunately, I don't have it in my wallet, but now I'm wondering if I should change it. I like to buy out-of-favor companies in the hope that they will recover quickly when sentiment changes. So should I add the budget airline to my portfolio in June?
Last month marked the latest in a series of disappointments for easyJet investors. The stock is now down 2.4% in one year and 45.72% in three.
It's a shame because the last time I looked at it, on February 28, it seemed to be on the rise, just flying out of the FTSE 250 and back to the FTSE 100. It was cashing in on the trend of so-called 'revenge trips', as travelers caught up on exotic trips missed during those boring Covid lockdowns.
FTSE 100 turbulence
Travelers were also spending more on seat upgrades and in-flight meals, boosting ancillary revenues. This helped easyJet turn a full-year 2022 loss of £178m into an overall pre-tax profit of £455m.
However, there were problems on the horizon, as the Gaza conflict forced the suspension of flights to Israel and Jordan, while demand fell on Egyptian routes. However, the board was optimistic about bookings increasing for summer 2024, while volumes, pricing and revenue per seat looked set to take off. So what went wrong?
The half-year results published on May 16 did not produce good results. easyJet shares fell 7% on the day as investors absorbed a total loss of £381m before tax. This was down from last year's loss of £411, but the market was not convinced.
Investors also ignored other positive news, such as net debt of £485m as of December 31, 2023 turning into net cash of £146m.
CEO Johan Lundgren spoke about “positive outlook” for the full year 2025, as its two newest bases in Alicante and Birmingham enjoyed above-average passenger numbers, with a “record summer” still in sight.
Top Recovery Stock
EasyJet's growing holiday business posted a £31m profit and Lundgren believes the entire group will deliver. “strong earnings growth in FY24”, but it did not work among investors. It probably didn't help that Lundgren resigned after more than seven years.
Overall market sentiment faded in the second half of the month, as the first interest rate cut appears to be delayed by the general election. The UK and European economies aren't exactly booming at the moment and people don't have as much money to spend on fun in the sun. easyJet's summer may look good, although perhaps not as good as investors expected at the start of the year.
While there are clearly risks, these are partly reflected in easyJet's undemanding valuation of 10.1 times earnings, well below the FTSE 100 average of 12.7 times.
Investors remain skeptical. They know how cyclical the airline sector can be. British Airways Owner Shares IAG They're even cheaper, at just 3.95 times earnings, so I'd probably buy them first. However, easyJet still seems to be reasonably priced to fly. I can't buy them all (unfortunately)!
