The easyJet (LSE: EZJ) share price perked up in January. But since then, it hasn’t really gone anywhere. I’m not surprised, seeing how the year has gone so far, with costs and interest rates a lot worse than I’d hoped.
But the shares are still down 70% in the past five years. So is it time to buy before a new recovery sets in?
Valuation looks cheap
On some key measures, easyJet shares look cheap to me.
We have a price-to-earnings (P/E) ratio of about 11.5 for this year. Now that doesn’t scream buy to me, but if forecasts are right, it would slide to only a bit over seven by 2025.
The analysts even expect dividends to be back, yielding more than 3.5% by then. And I always like to see firms paying out cash.
The big problem is that it can be hard to value shares, with airlines particularly tricky. The sector can be cyclical, and airlines face many headwinds beyond their control. Fuel and airport costs can be high, and they can mostly only compete on price.
Investor sentiment
Ask a whole load of investors what they think of easyJet right now, and I can almost guarantee the replies will range from “fill your boots” to “not even with someone else’s bargepole“.
Me? I’ve always steered clear of airlines because they are so uncertain. But I won’t turn my nose up at any stock if I see it as good value. And right now, I think easyJet just might be.
Investors though are clearly on the fence over the easyJet share price. What might shift them to one side or the other?
Q3 update
We should have a Q3 update on 20 July, and I reckon most eyes will be on one key thing.
We’ve seen an upbeat outlook from the company, and some flesh on the bones of that could go a long way towards convincing the markets.
With H1 results, easyJet predicted a 20% rise in revenue per passenger seat in Q3, compared to the same quarter the year before. The firm also said easyJet holidays should make more than £80m in profit before tax for the full year.
If it can pull these off, and ups its guidance for the next few years, I think investors might take note. And it could give the easyJet share price a fresh drive going into the second half.
Buy, or not?
So should I add easyJet shares to my buy list? I won’t, but that’s not due to my long-held fears for airline stocks. In fact, I’d buy one right now if I thought it was good value in the light of the risks.
And I do think easyJet could fit the bill.
No, I won’t buy because I see so many more good value shares out there with less risk. And I just don’t have the cash to buy every stock I think is cheap.
But if I did, I might tuck away a few easyJet shares today.
