easyJet shares crash! Are they worth buying at a discount?

easyJet shares traded lower on Tuesday. Are they worth buying at a discount? Anna Sokolidou tries to find out.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

easyJet (LSE:EZJ) shares are trading lower today, just like the whole FTSE 100. Are the shares worth buying now? Or is it the beginning of a crash?

easyJet shares

This August was a beautiful time for stocks generally. And so was it for UK investors. It looks like last month was the beginning of a turnaround for easyJet shares too.

Source: Google Finance

As can be seen from the graph, the stock reached its bottom on 31 July. In August it rallied. But the question is whether that rally will last. 

easyJet shares and air travel

Nothing important has recently been announced by the company itself. The state of air traffic in the UK isn’t particularly inspiring right now. Quite regularly new countries are added on the quarantine list. This means that passengers arriving from those countries must self-isolate for two weeks. But, unfortunately, the problems don’t end here. Passengers are required to wear masks while on flights. And, well, many of them are unwilling to do so. But it does not just raise the infection risk. It also means many people are discouraged from travelling. Some are simply afraid of catching the coronavirus. But others aren’t uncomfortable with face coverings and social distancing measures. All that means that the demand for air travel will stay under pressure for some time. And so will the air travel companies’ sales revenue.

I am writing on how it looks from a personal level for firms like easyJet. It seems to me that my colleague Edward is right in saying that easyJet shares are simply not worth buying. However, I do see two key questions here. The first one is how long the coronavirus crisis will last. The second is how long easyJet can afford to wait for the sector’s rebound. 

Cornavirus crisis      

Although it looks like the infection rate in the UK stabilised somewhat, there is a risk of another Covid-19 wave. The US, for example, is going through one. The key question here, I think, is when the world will get access to an effective vaccine. Only after a dramatic plunge in the number of new coronavirus patients will the existing travel restrictions be removed, I believe. I really hope it will happen soon. But it doesn’t look like it will happen tomorrow. So, how long can easyJet cancope with the air travel crisis?

easyJet fundamentals

As we all know, the company is currently loss-making. It still has to service its planes and pay wages to its remaining staff. At the same time, the revenue for the third quarter was just £7m. The loss, meanwhile, was (£324.5m). The good thing is that easyJet has a sound cash pile. In March the company announced it had liquidity  to survive nine months of groundings. easyJet resumed a limited number of flights on 15 June. So, the company’s fleet isn’t completely grounded. What’s more, the company is a low-cost airline, which is one of the company’s competitive advantages. When people don’t have enough cash, they tend to look for cheaper alternatives. If the economic crisis continues even after the outbreak, easyJet will be here to gain. 

Deciding whether it’s worth buying easyJet shares depends on your patience and willingness to take on risk. If you can wait, then buying the stock might be a smart move. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Anna Sokolidou has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mixed-race female couple enjoying themselves on a walk
Investing Articles

A once-in-a-decade chance to get rich buying growth stocks?

We haven't seen a good spell for growth stocks for quite a few years now. But I reckon the signs…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

The FTSE 100 is full of bargains! Here’s 1 stock I’m eyeing up

A weak economic outlook has hurt the FTSE 100. This Fool explains why she likes the look of this consumer…

Read more »

Investing Articles

2 no-brainer beginner FTSE 100 stocks to buy for my portfolio

Getting started with investing can be daunting. Here are two stocks for beginners to consider buying to build their first…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 recession-resistant UK shares investors should consider buying

Our writer details two UK shares she feels could withstand some of the ill-effects of the current malaise to provide…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Glencore share price drops on results. Time to buy?

The Glencore share price wobbled a bit after a weak set of 2023 results. Here's why I have the stock…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Big trouble in China sinks HSBC shares. Should I invest after record FY results?

HSBC shares have slumped following a disappointing end to 2023 for the FTSE stock. Royston Wild explains why this may…

Read more »

View of Tower Bridge in Autumn
Investing Articles

3 dirt cheap FTSE 100 shares to snap up today?

The FTSE 100 is rallying, but many shares still look super cheap on fundamentals. Is our writer buying these three…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 earnings: what can we expect from Rolls-Royce in 2024?

The Rolls-Royce share price tripled in 2023. Roland Head wonders whether this FTSE 100 stock could continue that impressive trajectory…

Read more »