Image source: easyJet plc
Last year it was seen easyJet (LSE:EZJ) reports strong demand and recovers its dividend. In 12 months, the easyJet share price has grown by 28%.
Where will things go from now on? Should I invest?
Strong performance and strong demand
In May's interim results phase, easyJet reported good news on customer demand.
Passenger numbers increased by 11% compared to the same period last year. Revenue rose 23% to £3.3bn. Meanwhile, overhead costs (that is, costs excluding extraordinary ones) grew more slowly, at 17%.
Still, there was an overall pre-tax loss of £350m. This is substantial, especially considering the company has a market capitalization of less than £4bn.
Summer is peak season for airlines such as easyJet and the company had hoped a strong season would significantly boost its profits. Net income last year was £324m. That means the current price-to-earnings (P/E) ratio is 11. If the company delivers on expected earnings growth, then the forward-looking P/E ratio will be even lower.
Since the interim results, another quarterly business report showed strong passenger numbers and better overall profits compared to the same quarter last year. Additionally, the previously indebted company reported a net cash position at the end of the first half.
easyJet shares don't look expensive to me
Given the airline's recent results, I don't think easyJet's share price is high. If the business continues to do well, I think it could go higher.
It has a strong brand and a proven business model. It has net cash and expects to be profitable this year. Valuation relative to earnings looks cheap and the dividend has returned.
Still I'm not tempted to buy. If I had invested £1,000 in easyJet shares five years ago, my share would now be worth just under £480, even after the strong performance of the last 12 months. On top of that, if you had bought when the company was paying a regular dividend, you would have seen those passive income streams dry up unexpectedly for several years.
Past performance is not necessarily indicative of what will happen next in the stock market. But he reasons Because easyJet's performance over the past five years reflects the ongoing risks I see in the aviation industry.
Demand is difficult to predict. It can be hit by a weak economy and decimated by events outside an airline's control, from health-related travel restrictions to a terrorist attack.
That's not an attractive business model to me. I do not believe that EasyJet's current share price, cheap as it may seem, offers me a sufficient margin of safety as an investor should some of those risks materialize, as I expect they will at some point in the next few years (although potentially not). for a long time). So I have no plans to buy.
