At 330p, is the easyJet share price now dirt-cheap?

Andrew Woods questions why the easyJet share price is still so low, given an improvement in capacity and financial results.

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In recent years, the easyJet (LSE:EZJ) share price has been volatile. As the pandemic led to the grounding of aircraft, the shares sank to very low levels. They’ve still not recovered, and I want to know if by buying them, I could be picking up dirt-cheap stock. Let’s take a closer look.

Improving capacity and narrowing losses

The most recent set of results indicate to me that the short-haul airline’s business is beginning to bounce back.

By just about every metric, the firm showed improvement in a report for the three months to 30 June. The number of flights flown was over 140,000. During the same period in 2021, this figure stood at just 24,600.

Also, more than 22,000 passengers flew on easyJet aircraft, compared to just under 3,000 in 2021. This translated to a capacity figure of 87% of 2019 levels, compared with 16% for the same three months in 2021. For the current quarter, the company expects capacity to reach 90%.

All these positive results are also beginning to filter into financial data. Group revenue for the most recent quarter was in excess of £1.7bn, about eight times greater than in 2021. Furthermore, it reported narrowing pre-tax losses of £114m.

These results strike me as very positive indeed. Yet since their release, the share price is down over 15%. I find it difficult to make sense of this and think that the market hasn’t fully factored in the financial improvement into the shares quite yet.

Are the shares really cheap?

The firm hasn’t been without it challenges, however. An uptick in demand after the pandemic blindsided the airline, leading to staff shortages and flight cancellations. The business responded by hurriedly recruiting cabin crew, promising a £1,000 sign-on bonus.

Jet fuel prices have also become an issue since the war in Ukraine began, but easyJet has hedged much of this at lower levels. In any case, the underlying price of crude oil is beginning to fall, so I don’t think this should be a long-term issue.

easyJet also has some of the lowest debt levels in the sector, reducing this to £200m at the end of June. It stood at £600m the previous quarter. Additionally, it has a cash balance of £3.9bn, meaning it should easily be able to deal with any further challenges.

Furthermore, with a trailing price to earnings (P/E) ratio of 11.99, the firm may indeed be cheap at the current share price. This is significantly lower than a major competitor, Wizz Air, that has a trailing P/E ratio of 74.46. The lower ratio is an indication that easyJet shares could be a bargain at current levels. 

Overall, this is a company that looks to be improving. But it’s obvious that the share price doesn’t yet reflect this. To that end, I’ll add the firm to my portfolio soon, because I think the share price could climb.

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.

Andrew Woods 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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