In the last year, easyJet (LSE: EZJ) shares have almost halved in value and now sit near their 52-week low. So much for the ‘post-pandemic recovery’.
Of course, there will come a time when the risk/reward trade-off looks too attractive to miss. So, like an impatient child in seat behind, I’m asking: “Are we there yet?”.
Why are easyJet shares still falling?
The reasons for easyJet’s share price collapse aren’t hard to fathom. At least some of this is simply a response to the awful market conditions we’ve seen in 2022 so far.
Sure, there have been a few exceptions, with oil giants and energy firms have been the most obvious winners. But pretty much everything else has suffered. And when the chips are down, investors sell what they can to reduce risk.
Having said this, some of the fall feels quite rational. Understandably, the disruption seen at UK airports over the last few weeks — as airlines have been forced to cancel flights due to the shortage of staff — hasn’t gone down well with the market. Throw in high fuel costs and the investment case takes another knock.
Reasons to steer clear
But things might get worse for the business. As the cost of living soars, spending by families is being reigned in. Plans to venture abroad are being put off for another year and alternative plans have been drawn up. Helped by the prospect of great UK weather on the way, demand for staycations has jumped. That’s hardly great news for easyJet.
A second thing that I don’t like is the lack of dividends. At times of market trouble, these can really help to numb the (temporary) pain. And if I’m in a position to reinvest rather than spend this income, I stand to benefit more from compound interest over the long term.
Damage limitation
That said, there are a few reasons to be optimistic. The company is taking action to reduce the damage done by reducing its flight schedule for the rest of the month. That’s not ideal. However, it’s a far better solution than cancelling a flight on the day passengers are due to travel.
With luck, this might help to limit the damage to easyJet’s reputation. Regardless, I reckon events such as those seen over recent weeks tend to be forgotten by travellers fairly rapidly. This is especially as easyJet is far from the only airline to be struggling at the moment.
It’s also worth noting that the number of short-sellers circling the company is small, at least relative to firms such as cinema operator Cineworld and B&Q owner Kingfisher. In other words, few traders feel comfortable betting that easyJet shares will continue to lose altitude. It’s not exactly a bullish signal, but every little helps.
My verdict
While taking the time to fully research a company is still vital, buying shares when they’re ‘most hated’ has the potential to be lucrative for a nimble private investor like me. Considering just how far easyJet has fallen, I’d say that point isn’t much further down the runway.
However, the short-term headwinds also lead me to believe that there could be further pain ahead. Considering this, I reckon the current market mayhem is throwing up far better opportunities for my portfolio elsewhere.
