The easyJet share price: opportunity or trap?

The easyJet share price is struggling once again. So is that an opportunity for investors like me, or are the shares still on shaky ground?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

While the easyJet (LSE: EZJ) share price is up 57% on where it was a year ago, it has not been an easy few months for shareholders as the shares have been sliding down. But that’s the past. The questions now are: what does the future hold, and are pandemic-related issues facing airlines like easyJet an opportunity or a trap?

Dilution and business travel

easyJet is still having to raise funds from shareholders. The airline plans to raise £1.2bn through a rights issue. Participants will be able to buy 31 shares for every 47 they own, at a 35.8% discount to the expected market price following the issue.

So there will be dilution, which would make future earnings per share growth even harder to come by because it will be divided between more shares.

It also highlights just how much pressure airlines remain under even as lockdowns generally are lifting – although of course that’s not true everywhere.

There’s also the issue of business travel. How long will it take for that to recover post pandemic now that companies are equipped to use videoconferencing and can save money on travel? This may affect easyJet less than other airlines, but it’s still a problem management will have to grapple with.

Light at the end of the tunnel for the share price?

While the easyJet share price certainly faces a lot of headwinds, perhaps better times are just around the corner. Many people have built up savings over lockdown, much of which could, as restrictions ease, be spent on foreign holidays.

The government is changing the traffic light system and rules around PCR testing – developments that could help airlines.

easyJet could use the rights issue to become significantly better placed to grow when conditions become more favourable. For example, it could acquire more airport slots. It could also reduce debt or buy back shares, which in turn could help the share price.

Another possible positive is that easyJet has appointed Stephen Hester as a director, and chair-designate. He comes with experience of turnarounds and is a successful and experienced executive. It’s possible his expertise could really help the airline over the coming months and years.

It’s been a difficult 18 months or so. Few industries have been hit as hard as travel. But there’s potential for a turnaround and easyJet is still standing, with a lot of help from its shareholders.

All that said, in a world of recovery plays, is easyJet really a standout buy? Not for me. It strikes me as more of a value trap than an opportunity for significant returns. That’s why I see little reason to add it to my own portfolio. I may be wrong and it may be the one that gets away spectacularly – nobody knows at the moment.

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.

Andy Ross owns no share 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »