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The easyJet (LSE: EZJ) share price has lost a lot of people a lot of money in recent years. Yet investors can’t leave it alone. They keep nibbling at the FTSE 250 stock, even though its shares are down almost 60% over five years.
The underlying thinking, it seems to me, is that easyJet – like every airline – was savaged by the pandemic, and should now be on the comeback trail. However, recent share price performance shows it’s not quite as simple as that.
Not so easy
EasyJet shares are up just 2.77% over the last year and that figure hides a lot of turbulence. They’re down 15.56% over the last six months. They finally looked primed for take-off after it reported record Q4 profits of between £650m and £670m on 2 October. Passenger numbers rose 8% year on year.
Yet now they’re falling again. Investors who were excited to learn the easyJet dividend would soon be restored cooled long before the first payout arrived. That seems harsh to me. Then again, it’s hard to get excited about next year’s forecast yield of just 0.9%. However, the payout is covered 13.4 times by earnings, so there’s plenty of scope for the shareholder payouts to rise.
The easyJet recovery play is more complicated than it seems at first glance. Obviously, it operates in the highly competitive short-haul market. Airlines have also been forced to pass on rising costs to passengers, making things even harder. Yet management is battling hard to stay ahead of the competition, upgrading its fleet with a big new Airbus order and expanding its easyJet holidays operation.
Shares in British Airways owner International Consolidated Airlines Group have been behaving in a similar way, also losing momentum last week. They’re up 14.06% over one year but down 63.83% over five years. IAG’s long-term underperformance suggests that it’s tough to make money running an airline.
Sunshine ahead
Investors seem unable to make up their minds about easyJet. That’s what happens when a company posts three successive years of losses, even if they narrowed from £1.03bn in 2021 to £208m in 2022. Now it’s looking forward to pre-tax profits of between £440m and £460m. That’s another leap in the right direction and another reason why I’d expect its shares to be performing better than they have been.
The company’s shares look 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 is a bit more respectable.
Looking at these figures, I’m beginning to get excited about the opportunity here. After all, easyJet was posting steadily rising profits before the pandemic struck. I suspect last week’s share price pullback may only be temporary. Consumers are still feeling the squeeze but they do like their holidays. And while the Gaza crisis could drive the oil price back up, lately it has been falling instead, which could be a tailwind if that continues.
I haven’t looked at easyJet in years and I’m more impressed than I expected. I might even consider buying it, when I have some cash at my disposal.
