The pandemic decimated the aviation industry, with global travel coming to a standstill. During March 2020, easyJet (LSE: EZJ) shares fell almost 70%.
Fast forward to 2023, and the stock seems to have regained some momentum. Over the last 12 months, it has risen an impressive 39%, 27% of which was this year alone. Given this impressive run, is now the time to be buying? Let’s investigate.
The shares currently trade on a price-to-sales (P/S) metric of 0.45. This shows me that investors are paying a mere 45p for every pound of revenue generated. For context, companies with a P/S ratio of below one are usually considered good value.
Comparing this to its rivals, I also see value. Wizz Air trades at a P/S ratio of 0.56, and Ryanair, a well-known industry giant, commands a hefty ratio of 1.64. EasyJet’s significantly lower P/S ratio underlines its attractive pricing for potential shareholders.
In addition to this, the current price of 420p is still significantly below the pre-pandemic levels the stock was trading at. Past performance is never an indication of future returns, however. But it does show that investors have been willing to price the stock much higher in the past.
Back in June, the airline released its 2023 third-quarter results, reporting an impressive £317m improvement in profit compared to the previous year. This was underpinned by a 7% increase in passenger numbers, coupled with a 23% rise in revenue per seat (RPS) year on year.
Notably, the airline achieved this while reducing headline costs per seat, excluding fuel, by 2%. In addition to this, easyJet holidays, a significant revenue stream, soared with a £49m profit before tax, impressive growth from the previous year’s £16m.
Furthermore, easyJet’s prudent financial management is evident in its debt reduction efforts, retiring approximately £1.2bn of debt during the fiscal year.
Looking ahead, the company remains optimistic, expecting Q4 to deliver another record-breaking performance with an anticipated 10% increase in RPS compared to the previous year. These results are extremely encouraging for a potential investor like me.
Not out of the woods yet
While easyJet results are impressive, macroeconomic headwinds still loom over the company. Higher inflation invariably leads to increased operating costs for airlines, cutting into their profit margins. The aviation industry heavily relies on fuel, labour, and maintenance, all of which become pricier in inflationary environments, squeezing budgets and eroding profitability.
In addition to this, rising interest rates elevate borrowing costs, making it more expensive for airlines to finance fleet expansions and infrastructure upgrades. Moreover, higher interest rates often dampen consumer spending on luxury items like holidays, which could reduce footfall.
I think at the current price of 420p, easyJet shares could be a solid buying opportunity. The company has delivered good results and is priced at an attractive valuation in my eyes. If I had some spare cash I’d be looking to buy some shares today.