Can the Easyjet share price recover in January?

The Easyjet share price plummeted in 2021. Christopher Ruane assesses the prospects of a January bounce — and explains his next move.

| 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.

Airline Easyjet (LSE: EZJ) is known for its no-frills service. But there also haven’t been any frills (or thrills) about its performance on the stock exchange lately. Over the past year, the Easyjet share price has tumbled 23%, at the time of writing this article last week.

After this fall, could bargain hunters push up the price in the first month of 2022 and beyond? Or will the share price keep losing altitude?

Challenges for the share price

The share price fall reflects investor concerns about the outlook for the airline’s business performance. Coming into 2021, the rollout of vaccines had created a wave of optimism about a surge in demand for travel. That boosted shares in firms such as Easyjet. Its share price more than doubled between the end of October 2020 and May last year.

Since then, I think some of that optimism has waned. Vaccines are now seen as one part of a pandemic-management approach that has involved stops and starts when it comes to travel. Mounting challenges to travellers — such as costly testing, complex paperwork and sudden policy shifts — have made many former fliers reassess their travel plans. Sudden border closures and rule changes have piled new costs onto airlines as well.

That has all weighed on the firm. Formerly known for its strong balance sheet, it raised extra funds last year. Although prudent, that looks to me like a sign of weakness not strength. It’s now only planning to get back to its pre-pandemic capacity by 2023 – and even that could turn out to be optimistic.

Reasons to be optimistic

In November, Easyjet reported a pre-tax annual loss of £1.1bn. Despite that, I do see some grounds for optimism around the outlook for the company.

It is planning on flying at almost two-thirds of its pre-pandemic capacity in the current quarter. While that is much reduced, it is still far ahead of what we saw in the quietest months of 2020. The company’s strong liquidity gives it some financial headroom while waiting for a fuller recovery of passenger demand. It has plans for substantial extra Summer capacity to capitalise on renewed holiday demand too. Meanwhile, the company’s cost-cutting could help it improve profit margins if a full demand recovery does happen.

Where next for the Easyjet share price?

Last month, the company’s chairman bought 27,000 shares and the finance chief purchased 15,000. That suggests they feel bullish about the company’s prospects.

January understandably focuses investors’ attention on the coming year, not the past one. With a much reduced share price and plans for a strong Summer 2022, I definitely see reasons that could support a January rally in Easyjet shares. On top of that, mounting evidence that the latest pandemic variant is less dangerous than feared could boost hopes for an increase in travel demand. So I reckon the Easyjet share price could increase in January.

I won’t be buying it for my portfolio though. There are simply too many uncertain variables for my risk tolerance. From the risk of further travel restrictions to limited forward visibility on bookings, it’s hard to feel confident about Easyjet’s performance even a couple of months from now, let alone a year from today. That is an issue that risks pushing the share price even lower. 

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.

Christopher Ruane 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

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 »