easyJet (LSE: EZJ) shares have experienced an extraordinary decline this year. Back in February, they were trading above 700p. Today however, they can be snapped up for around 300p.
Is it worth buying a few shares for my portfolio at the current price? Or are there better stocks to buy today? Let’s discuss.
easyJet shares: is a recovery on the horizon?
easyJet posted a trading update for the year ended 30 September last week, and I thought it was relatively encouraging.
For a start, the company said that demand remains strong. “Our summer 23 season went on sale last week and we were filling the equivalent of more than four A320 aircraft a minute in the opening hours demonstrating the continued demand,” said CEO Johan Lundgren.
This is good to know given that many people are struggling with the cost-of-living crisis. It’s worth pointing out however, that capacity is still well below pre-pandemic levels. For the current quarter, easyJet expects to hit 83% of FY2019 capacity.
Secondly, the group said operational issues are improving. Since the start of July, operations have normalised, with Q4 on-the-day cancellations below 2019 levels.
Third, it also said its balance sheet is robust, with around £3.6bn of cash and money market deposits, and net debt of £0.7bn, at 30 September.
Finally, it said it is well hedged in terms of fuel prices, with roughly 69% hedged for H1 FY2023 at around $802 per metric tonne.
As for profitability, for the 12 months to the end of September, easyJet forecasts it would post a pre-tax loss of between £170m and £190m. This includes a £64m FX loss from balance sheet revaluations (the stronger US dollar has had a negative impact) and disruption costs of around £75m. This loss estimate was roughly in line with what analysts had been expecting (£180m). So there were no nasty surprises here.
Overall, there were a number of positives to take away from this update, in my view. However, the market seemed quite disinterested – the easyJet share price hardly moved after the update.
Should I buy easyJet shares today?
If I was a ‘turnaround’ type of investor, I might consider having a nibble here. The share price has fallen a long way, and if easyJet can deliver an improved performance next year, there’s a chance that the stock could experience some form of rebound.
However, this isn’t my investment style. I’m a ‘quality’ investor with a long-term focus. In other words, I buy shares in high-quality companies that are consistently profitable (and have significant long-term growth potential), and hold them for the long run.
Airline shares aren’t a good fit for my portfolio because the industry tends to experience a crisis on a regular basis (as we’ve seen with easyJet in recent years). Airlines can be great ‘trades’ at times but, typically, they don’t make good long-term investments as something always eventually goes wrong.
So I’m going to pass on easyJet shares. All things considered, I think there are better stocks to buy for my portfolio today.
