The easyJet (LSE: EZJ) share price was the worst performer on the entire FTSE 100 last month, crashing 14.21%.
Happily, I don’t hold it in my portfolio, but now I’m wondering whether to change that. I like buying out-of-favour companies in the hope they rebound at speed when sentiment shifts. So should I add the budget airline to my portfolio in June?
Last month marked the latest in a string of disappointments for easyJet investors. The stock is now down 2.4% over one year and 45.72% over three.
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It’s a shame because when I last looked at it on 28 February, it seemed to be on the up, having just flown out of the FTSE 250 and back into the FTSE 100. It was cashing in on the so-called ‘revenge travel’ trend, as travellers caught up on exotic trips missed during those dreary Covid lockdowns.
FTSE 100 turbulence
Travellers were also spending more on seat upgrades and onboard meals, boosting ancillary revenues. This helped easyJet turned a 2022 full-year loss of £178m into a headline profit before tax of £455m.
Yet there trouble was on the horizon, as the Gaza conflict forced it to suspend flights to Israel and Jordan, while demand dipped on Egypt routes. Yet the board was optimistic with summer 2024 bookings rising, while volumes, pricing and revenues per seat looked ready to take off. So what went wrong?
The half-year results published on 16 May landed badly. easyJet shares fell 7% on the day as investors absorbed a £381m headline loss before tax. This was down from a £411 loss last year, but the market wasn’t convinced.
Investors also ignored other positive news, such as 31 December 2023’s net debt of £485m transforming into £146m net cash.
CEO Johan Lundgren talked up a “positive outlook” for full-year 2025 as its two newest bases in Alicante and Birmingham enjoyed above average passenger numbers, with a “record summer” still in sight.
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EasyJet’s growing holidays business posted a £31m profit and Lundgren reckons the overall group will deliver “strong FY24 earnings growth”, but it didn’t fly with investors. It probably didn’t help that Lundgren is to step down after more than seven years.
Wider market sentiment trailed off in the second half of the month, as the first interest rate cut looks like being pushed back by the general election. The UK and European economies aren’t exactly booming right now, and people don’t have as much money to spend on fun in the sun. easyJet’s summer may look good, just maybe not quite as good as investors hoped at the start of the year.
While there are clearly risks, these are partly reflected in easyJet’s undemanding valuation of 10.1 times earnings, well below the FTSE 100 average of 12.7 times.
Investors remain sceptical. They know how cyclical the airline sector can be. Shares in British Airways owner IAG are even cheaper at just 3.95 times earnings, so I’d probably buy that first. Yet easyJet still looks priced to fly. Can’t buy ’em all (sadly)!
