The easyJet share price rally stalls! Is it time to buy the dip?

Our writer examines why the easyJet share price dipped after a recent good run and whether it presents a buying opportunity or not.

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Image source: easyJet plc

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It’s fair to say that the easyJet (LSE: EZJ) share price was in doldrums when the pandemic struck and for some time after. It had begun to recover in recent months. However, another drop off since the summer could present an opportunity to buy the dip. Let’s take a closer look to see if I should buy the shares.

What’s happening with the easyJet share price?

Let’s start by going all the way back to 2020. The pandemic struck, lockdowns were enforced and non-essential travel, including air travel, was prohibited. easyJet shares fell nearly 70% in the space of a couple of weeks from 1,270p to 399p between late February and early March 2020.

More recently, the share price began to creep upwards, especially earlier in the year. The shares reached over 500p in March and stayed constant until around June. Things began to slowly unravel and they now trade for 385p, a 25% drop off.

I believe the shares have dipped for a couple of reasons. One of the biggest is the current tragic events in the Middle East. Plus, a Q4 report wasn’t as fruitful as previously forecast. For example, the business gave a full-year profit outlook of between £440m and £460m in its report. However, this was less than earlier forecasts of £469m. Furthermore, macroeconomic issues haven’t helped either.

The investment case

Although there is a potential opportunity to buy the dip, the easyJet investment case is still a tricky one for me.

On one hand, a cost-of-living crisis means consumers feeling the pinch could be less inclined to book holidays. This could dent easyJet’s performance. Plus, geopolitical issues could also hamper the business, especially as some of its destinations are close to the troubled area, namely Sharm-el-Sheikh and Hurghada in Egypt. I traveled to the former just six months ago, albeit with one of easyJet’s rivals. Plus, when you consider that the Middle East is home to many of the world’s oil reserves, fuel prices could skyrocket due to volatility, further impacting easyJet too.

At present, the easyJet share price looks like it could remain stagnant or even fall lower. It’s tough to put a valuation on the shares when looking at a price-to-earnings ratio as the business posted a loss last year. Forecasts for 2023 indicate a ratio of close to seven, which could be enticing. However, as we’ve seen recently, forecasts don’t always come to fruition.

Moving on, easyJet as a business is attractive, especially when you consider the low-cost carrier’s business model, offering, and decent balance sheet at present. With a plethora of destinations on offer to business customers and holiday goers, as well as its burgeoning packaged holidays arm, there’s potential for a recovery over the longer term if you ask me. We may even see dividends being paid later down the line according to analysts. I’m not convinced just yet.

What I’m doing now

To conclude, there’s enough in the easyJet share price dip to make me believe there’s a potential buying opportunity.

However, I’m not going to buy the shares right now. Firstly, I want to see its full-year results. I also want to see how geopolitical events play out, hoping for a peaceful solution for all, of course. Plus, if I’m going to buy airline stock right now, I’d be more inclined to buy IAG shares personally. It possesses larger operations and a wider footprint.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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