The easyJet (LSE: EZJ) share price has been on a roller-coaster ride of late. The airline stock remains more expensive than it was this time last year (up 32% in fact). But last week it closed at 10-month lows of 566p before bouncing again.
And it rose again in start-of-week business. Indeed, at 654.2p per share, easyJet closed 3.8% higher in Monday business. Can the low-cost flyer continue to gain altitude? And should I buy the FTSE 250 company based on its long-term profits outlook?
Why easyJet could keep climbing
There are several reasons why I think easyJet’s share price might keep rising. These include:
- A further rollback in travel restrictions. UK travel shares like easyJet rose last week when Britain announced changes to its tough travel restrictions. And today airline stocks jumped again as news came that the US is about to lift its travel ban for coronavirus-vaccinated British and EU travellers. easyJet doesn’t have any skin in the transatlantic game. But easing of travel restrictions is positive and further good news on this front could well keep on coming.
- A fresh takeover approach occurs. The easyJet share price fell through the floor last week on news it was launching a £1.2bn rights issue to bolster its balance sheet. Investors also weren’t impressed by news that the Luton-based airline had knocked back a takeover approach (rumoured to be from Wizz Air). Could this be the opening salvo of a takeover battle for easyJet, though? The industry is ripe for consolidation following the Covid-19 crisis and there could be cash-rich rivals like Ryanair waiting in the wings.
Why I’m resisting easyJet’s share price
There could clearly be scope for easyJet’s share price to keep soaring, then. But there are a number of factors in play that could wrench the company’s stock back into a tailspin. Most prevalent, of course, is a worsening in the coronavirus crisis and the need for additional fundraising later down the line.
As analysts at Hargreaves Lansdown recently commented: “as winter approaches and the delta variant continues to spread, easyJet’s battening down the hatches for another year of lacklustre travel trends.” The business still has a whopping £1.1bn of net debt on its books. And as well as extended revenue pressures easyjet could be hit by a sharp rise in fuel costs if oil supply issues grow.
I like easyJet and I think it has a bright future as the low-cost travel segment still has plenty of room to grow. But the airline’s outlook in the short-to-medium future remains uncertain as Covid-19 cases keep rising. At the moment easyJet’s share price trades on an elevated price-to-earnings (P/E) ratio of 32 times. And in my opinion this doesn’t offer an attractive risk/reward balance for my portfolio.
