The easyJet (LSE: EZJ) share price has had a stellar year so far. In fact, a 32% rise is yet further evidence that taking a contrarian stance has the potential to generate massive market-beating returns. For comparison, the FTSE 250 index is 3% down from where it stood in January.
I suspect the stock could move even higher when full-year numbers land later this month.
The recovery is on!
There’s little doubt that UK airlines are in a better place than they were.
Back in October, easyJet said that it had “delivered a record summer“. Pre-tax profit for Q4 was expected to be between £650m-£670m.
More recent evidence of a thriving industry comes from one of its biggest rivals. Earlier in November, Ryanair predicted record annual profit due to airfares jumping 24% over the warmer months.
It would seem that people have been reluctant to give up their holidays more than anything else during the cost-of-living crisis. And with easyJet already expecting capacity to grow by roughly 15% in Q1 of FY24, this resilience looks likely to continue.
Meanwhile, the stock still looks pretty cheap relative to the UK market and on par with other budget carriers.
This brings me to something else I’ve been thinking about.
Potential bid target
While it should never be the sole reason to buy a stake in any company, I can’t say I’d be amazed if easyJet became a bid target again. Let’s not forget that the firm “received an unsolicited preliminary takeover approach” just over two years ago. The bidder wasn’t named but rumours swirled that it was fellow mid-cap Wizz Air. Interestingly, the Luton-based business had a higher market value immediately prior to the approach being made than it does now.
Granted, this is unconnected to whatever happens on 28 November.
But news of a suitor or two returning to run the rule? That could really send the shares rocketing.
Obviously, there are still risks here.
Prices tend to be driven by expectations rather than fundamentals, at least in the short term. So, it’s worth asking myself just how much of the post-pandemic recovery in business is already priced in.
Now, I expect this month’s statement to be positive. However, we could be in for a (temporary) fall if an impatient market is hoping for an upgrade to previous estimates and ends up disappointed.
Naturally, the nature of what it does means that easyJet’s fortunes are, to some extent, beyond its control too. Poor weather, industry strikes and high fuel prices are all potential headwinds. They always will be.
It’s also worth remembering that this company hasn’t paid a dividend since March 2020. That’s hardly attractive considering many savings accounts now beat inflation.
Not for me
Of course, it’s easy to speculate. The bottom line is that nobody knows where share prices are going in the very near term. Not even those highly-paid fund managers in the City.
This is why I continue to look for stocks I’d be happy to buy and hold for years (and even decades).
Given my renewed penchant for less cyclical stocks (bar one or two exceptions), easyJet isn’t one of them. That’s even if the company manages to round off 2023 on a high.