Buying in the depths of the 2020 stock market crash has meant big profits for a lot of investors. So what if I’d managed to put £10k into easyJet (LSE:EZJ) shares at their lowest point that year?
Well, today my 10 grand would have turned into a juicy, erm, £9,700. Hmm, not so good. But things could be set to change.
Vulnerable to dips
I’ve never bought airline shares for a couple of key reasons.
One is that there’s really nothing to distinguish between competing flyers other than price. And a cut-throat, low-margin business just isn’t my ideal for earning long-term profits.
The other reason is that airlines are at the complete mercy of outside cost factors over which they have no control.
I’m thinking fuel costs mainly, but there are airport fees, engine maintenance, regulatory costs, French air traffic control strikes…
Pandemic
I confess I hadn’t anticipated a global pandemic that brought the aviation industry to its knees.
Saying that, it did look like easyJet shares were recovering in 2021. But from that second Covid summer, they turned tail again.
In fact, by late 2022, the easyJet price had plunged even lower than in the worst of 2020. So anyone investing then could be sitting on a decent profit now.
Recovery stocks
This all makes me think about how to approach recovery situations.
People often invest speculatively. A stock is hammered in a crash, so buy it because it surely must go up again.
But I want to see signs of the recovery happening first. When profits return and cash starts flowing again, that’s when I might buy.
It doesn’t always work out, mind. By waiting for Rolls-Royce Holdings to return to positive cash flow, I left it too late to bag the profits I could have made had I speculated earlier.
Lose some, win some
But it looks like my caution in 2020 saved me from losing money on easyJet shares.
The big question is whether to buy today. It’s all very well talking about how a £10k investment in the past would have gone. But what counts is what we might achieve with that kind of cash in the future.
And I like the look of easyJet shares right now.
Analysts expect the firm to return to profit this year, and put the shares on a price-to-earnings (P/E) ratio of about nine. And if forecasts come good, that should fall as low as six by 2025.
Dividends too?
And I’d hardly have believed it even six months ago, but there are dividends on the cards. The City folk have a dividend yield of 3% pencilled in for 2024, rising as high as 4.5% by 2025.
If that comes off, I think it would be a remarkable transformation.
I probably won’t buy easyJet shares, because it’s still an airline with airline risks. And with so many safer stocks at cheap prices, I don’t need to take those risks.
But if I did buy an airline stock, it would be easyJet.
