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He easyJet (LSE:EZJ) share price has lost a lot of people a lot of money in recent years. However, investors can’t leave it alone. They keep nibbling FTSE 250 shares, even though its shares are down almost 60% in five years.
It seems to me that the underlying thinking is that easyJet – like all airlines – was devastated by the pandemic and should now be on the way back. However, recent share price performance shows it’s not as simple as that.
not so easy
EasyJet shares have risen just 2.77% over the last year and that figure hides a lot of turbulence. They have dropped 15.56% in the last six months. They finally seemed ready for take-off after it reported record fourth-quarter profits of between £650m and £670m on October 2. The number of passengers increased by 8% year-on-year.
However, now they are falling again. Investors who were excited to learn that easyJet’s dividend would soon be reinstated cooled off long before the first payout arrived. That seems harsh to me. On the other hand, it’s hard to get excited about next year’s expected return of just 0.9%. However, the payout is covered 13.4 times by earnings, so there’s plenty of room for payouts to shareholders to increase.
The easyJet recovery process is more complicated than it first appears. Obviously, it operates in the highly competitive short-haul market. Airlines have also been forced to pass on rising costs to passengers, further complicating matters. However, management is fighting hard to stay ahead of the competition and is updating its fleet with a big new addition. Airbus place orders and expand your holiday operations with easyJet.
British Airways Owner Shares International Group of Consolidated Airlines have been behaving similarly, also losing momentum last week. They have increased 14.06% in one year but have decreased 63.83% in five years. IAG’s long-term poor performance suggests it is difficult to make money running an airline.
Sun ahead
Investors seem unable to make up their minds about easyJet. That’s what happens when a company posts three consecutive years of losses, even if they narrowed from £1.03bn in 2021 to £208m in 2022. It now expects to make pre-tax profits of between £440m and £460m. That’s another jump in the right direction and another reason why you’d expect its stock to perform better than before.
The company’s stock appears to be a good value, with a forward P/E of 8.67 times earnings for 2023 and 7.20 times for 2024. By then, the yield is expected to be 3.03%, which which is a little more respectable.
Looking at these numbers, I’m starting to get excited about the opportunity here. After all, easyJet was posting steadily rising profits before the pandemic hit. I suspect last week’s share price drop may only be temporary. Consumers are still feeling the pressure, but they like the holidays. And while the Gaza crisis could cause the price of oil to rise again, it has been falling lately, which could be a tailwind if the situation continues.
I haven’t seen easyJet in years and I’m more impressed than I expected. I might even consider purchasing it, when I have some cash at my disposal.
