In February 2020, the pandemic hit the UK stock market. The easyJet (LSE: EZJ) share price had been riding high, but it crashed hard.
It’s now dropped 70% since that fateful month, and it’s down 64% in the past five years.
The airline has done a bit better than the International Airlines Group share price, but not by much.
A screaming buy?
The big question, does the easyJet share price make the stock an easy potential buy today? I think the valuation, at least, says yes.
I’m looking at broker forecasts. They’re often only a rough guide, so we can’t take too much from them. But they paint a rosy picture of easyJet’s next few years.
A price-to-earnings (P/E) ratio is one clue. And the predicted figure for 2023 comes in at about nine.
Analysts see earnings rising nicely in the next couple of years, which would drop the P/E to less than 6.5 by 2025. Other things equal, that looks too cheap.
What do I mean, dividends from easyJet? Well, yes, the City folk reckon they’re coming back. There’s not likely to be much this year, but we could see a yield of 3.7% by 2025.
There’s a dividend down for International Airlines Group too, reaching a mooted 3% for 2025.
So, share prices still at deep lows, valuations low too, earnings growth on the cards, and a return to dividends. I think it might just be time to buy back into airlines.
We’re only a week away from easyJet’s full-year results, so we don’t have long to wait. But we had a preview in October’s update.
For Q4, easyJet reported a record headline profit before tax, which should be between £650m and £670m.
It’s been a tough year, for sure. And we should see only £440m to £460m for the full year. But that final quarter screams turnaround to me.
The firm expects further passenger growth, and is buying new aircraft. And, well, it sounds like an airline that’s operating in good times.
But we can’t ignore the obvious. The world is in an economic and political mess right now. And the uncertainties facing the travel and leisure industry are still huge.
I wouldn’t be surprised to see the easyJet share price staying low for some time to come. And we might even need to see the colour of the dividend cash before investors are happy.
Add to that the number of other super cheap shares out there, which don’t look as risky to me, and I can see why folk aren’t rushing to buy easyJet.
Too many choices
I mean, which looks better, easyJet on a P/E of nine and decent dividends a couple of years away? Or Barclays, with a P/E of five, and a 5.4% dividend this year? My money would be on the bank every time.
But, I need a bit of diversification away from finance stocks. And this might just be the time to consider buying some eastJet shares.