The easyJet share price is down 30% in 6 months – is this stock ready to take off?

easyJet’s share price continues to fall. However, a look at operational developments and the wider travel sector encourages me to consider investment.

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The easyJet (LSE: EZJ) share price has dropped over 30% in the last six months, and around 7.5% in the last year, now sitting at around 555p. This has resulted from continued headline losses and a rights issue expressed in this last fiscal year’s reports. However, the company’s management has been successful in aims to “lead recovery” out of the pandemic. As the travel and leisure sector looks to start its recovery, and easyJet’s business starts to pick up again, is it time for me to invest in this airline?

The falling share price

easyJet’s rights issue saw over 300 million shares listed (at 410p) this September. Such a great increase in outstanding shares has been dilutive, causing the share price to fall. Additionally, the company estimates that it will record pre-tax headline losses of between £1,135-1,175m this fiscal year, a 36-40% increase from last year. This has contributed to the falling share price.

Poor financial results have been a sector-wide problem, however. For example, Jet2 expects losses of around £336m this year, while IAG has recorded losses of €7,426 for FY20. Nonetheless, the easyJet share price has still underperformed, primarily due to its rights issue.

There is potential, however. For example, the company has trimmed its cash burn to around £36m per week, far lower than estimates of £40m per week. As of the end of September, it also had access to £4.4bn of liquidity, while net debt has fallen to £900m. These are promising signs.

Looking forward for easyJet

There is optimism to be had for this share price. For instance, the reopening of the travel sector is progressing. The company reports positive booking momentum for Q1 of FY21, reflecting the UK government’s announcement to remove certain travel restrictions. Despite the discouraging reintroduction of PCR testing, I remain confident that consumer demand will continue to rise, and airlines travel stocks continue to benefit.

A look at operational developments suggests very good prospects for easyJet. Operating capacity has increased from 17% (of FY19) in Q3 to 58% in Q4, in preparation for increased consumer demand. For the first quarter of FY22, it also expects to fly up to 70% of FY19 capacity. This demonstrates the recent progress the group has made. Moreover, a Q4 generation of £40 million in positive operating cash flow shows that the tide may finally be turning. This is the main reason why I feel that the easyJet share price has upside potential.

Does easyJet have high potential?

Developments in operational health suggest easyJet have successfully mitigated the effects of the pandemic, despite such achievement not being reflected in share price. Moreover, easyJet is very well prepared for increased consumer demand across FY21. This largely fulfils managerial aims to lead the recovery.

Despite a worrying decline in easyJet’s share price over these last six months, I think that there is a great deal of long-term upside potential. As such, while the short-term future still seems volatile, I may add easyJet shares to my portfolio.

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.

Hamish Cassidy 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.

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