The past month has been tough for the FTSE 100 budget airline easyJet (LSE: EZJ). As I write, its share price is at 646p, the lowest in two months. Let me put the latest easyJet share price in perspective. It’s almost 30% below the 2020 average, a year that has seen the stock market crash.
Some share price volatility was expected. EasyJet has been in the eye of the storm, with its operations directly impacted by the coronavirus crisis. As the lockdown easing began, the easyJet share price saw improvements. But it has been falling for much of July now, down by 13% from June. I think the question now when considering buying EZJ is: Can its share price get better from here or will it continue to slide down?
EZJ share price hit by developments at the company
To answer this, I’d like to rewind to around a month ago, to the trigger of the easyJet share price fall. It coincided with two developments – the release of the company’s half-year report and its equity fundraising. The half-year report showed some sluggishness and the company didn’t given forward guidance either, which may have damaged investor confidence. The fundraising may have put off some shareholders who now hold a smaller share of the EZJ pie.
But that wasn’t the end of the troubles for the EZJ share price. The company also announced that it’s closing down three bases and has to let go of some of its staff. In the news release, it said “the levels of market demand seen in 2019 are not likely to be reached again until 2023”. I think this means a few years of hardship are in store for EZJ.
The upside
That the aviation industry was going to take a while to come back on track was a given. EZJ alone has had to raise much capital to keep going. It’s running at below-capacity and this will most likely be a loss-making year. There’s no telling how long the recession will last, which will also impact EZJ’s operations. And there’s always the threat of a return of the coronavirus. Yet, I think there’s still merit to EZJ as an investment.
The company’s results are available so far only up to the end of March, which only covers the start of lockdowns, so it doesn’t show the full impact. Still, it’s good to know that revenue was marginally higher than last year. Also, there’s hectic work underway to develop the Covid-19 vaccine. If it becomes available in the coming months, the virus’s threat will recede. Further, the economy is showing the first signs of growth. And last, but not the least, the EZJ share price trend shows that it’s dependent on improvement in conditions. So, even if EZJ struggles before it finds a firm footing going forward, its share price can be rewarding for the investor as long as the situation gets better. I think it’s still a stock to consider.
