easyJet (LSE: EZJ) shares have been on a far from easy ride in the last few years. Since a surge pre-pandemic, the FTSE 250 stock has seen its share price drop off, ultimately ending with its demotion from the FTSE 100.
This comes as no real surprise. The pandemic caused monumental disruption to easyJet and its peers’ operations. And the Covid hangover, signposted by red hot inflation, has further created unfavourable conditions for the business.
Despite this, the stock has rallied in 2023, rising an impressive near-40%, predominantly due to a 50% jump back in January. However, following its strong start, it’s been on a steady decline.
So, will the stock regain its fine form of January? And should I be adding it to my portfolio?
Plenty to like
Despite the lagging share price, easyJet has quite a lot of momentum at the moment. That’s according to a recent trading update from the firm.
For the third quarter ended 30 June, the budget airline saw passenger growth of 7% year on year. And along with a revenue per seat increase of 23%, it posted pre-tax profit of £203m (versus -£114m the year prior). Looking ahead, CEO Johan Lundgren recently stated he expects another record pre-tax profit performance in Q4.
The stock also has a forward-looking earnings multiple of around 8. With the benchmark for value around 10, this shows easyJet shares seem to offer good value.
On top of this, predictions of double-digit growth through to 2025 push it as low as 6. These are encouraging signs.
Major risks
While there’s plenty to like, I have my concerns about easyJet.
Namely, the business faces the risk of the ongoing industrial action that has plagued the industry this summer. easyJet recently stated disruption at air traffic control was at “unprecedented” levels.
Among my other concerns is the highly cyclical nature of the airline industry. When issues such as inflation and a rising cost of living continue to dictate consumer spending habits, as is the case now, the risk of falling demand is always lingering. Despite its impressive recovery, we could see this play out in the second half of the year, a concern voiced last month by Ryanair CEO Michael O’Leary.
Rising fuel costs could also add to these woes, especially given its thin margins. And should the extreme wildfires seen this summer become a regular occurrence, future holiday cancellations could mean revenues take a hit. Granted, I don’t deem this a major issue and with their short-term memories, I expect holiday makers to resiliently move on. But it’s worth noting.
What I’m doing
There’s certainly a case to be made for easyJet shares. And the business has posted a strong recovery since the pandemic.
However, I’m not keen on adding the stock to my portfolio right now.
The business faces a variety of problems that could stunt its long-term profits and growth. And given this risk, I’m not confident its share price will be taking off any time soon.
I see plenty of value in UK shares today, so I’ll be looking at other FTSE 100 and FTSE 250 stocks to pick up.
