The easyJet (LSE: EZJ) share price is on the up. It’s climbed 21.79% in the last month, even though the FTSE 250 fell in that time.
I’m thrilled because exactly one month ago I tipped the budget carrier as a “brilliant buying opportunity” for my portfolio. I shouldn’t feel too smug, though. History shows that easyJet shares could go anywhere from here.
easyJet caught my eye because I decided it had been oversold after a poor run. The board had posted a 16% increase in headline Q3 pre-tax profits to £236m on 24 July, which seemed pretty positive to me.
Can easyJet shares continue to climb?
Profits at the easyJet Holidays division rocketed 49% to £73m. Passenger numbers rose a steady 8%, although its key metric of revenue per seat edged up just 1%.
I decided investors weren’t buying the stock because of nervousness about the state of the economy in general, and the airline sector in particular.
Airline stocks can be volatile. They have huge fixed costs, with fleets of planes and an army of staff, but revenues are at the mercy of recessions, conflict, adverse weather, strike action, volcanoes, and pandemics. easyJet’s shares are up 22.41% over the last year. Yet they’re still down 39.16% over five.
Long-term investors haven’t received much income as compensation. The company paid a dividend per share of 36.96p in 2019, which worked out to a 3.6% yield. Then the pandemic struck and they got nothing for four years.
Chart by TradingView
As the chart shows, the dividend is making a comeback, with a forecast yield of 2.41% in 2024, rising to 2.79% in 2025. Better still, easyJet shares look good value despite the recent increase, trading at just 8.79 times forward earnings.
This FTSE 250 stock could soar
Brokers tracking the stock are optimistic, setting an average one-year share price target of 654.5p. That’s up 25% from today’s price of around 524p per share.
Much now depends on the wider economy. The good news is that wages have been rising faster than inflation for some time. As interest rate cuts start feeding through, that should put more money into people’s pockets.
Falling oil prices are another positive, as this will cut fuel costs and lift margins. However, that may reverse if the global economy picks up and oil demand recovers.
Ryanair spooked investors by complaining about falling demand and rising prices over the summer, while easyJet just shrugged off these concerns. That seems odd, although as CEO Johan Lundgren pointed out, they only directly compete on 20% of routes.
The outlook is better but as we’ve seen in the past, that can change in an instant. The cost-of-living crisis isn’t over yet. easyJet has to work hard to boost revenues per seat, and convince investors its recovery is sustainable.
Sadly, I didn’t have the money to buy easyJet last month. I’m still keen to buy its shares, I’m just annoyed to have to pay 20% more for them today.
I’ll bite the bullet anyway. I think this is the type of consumer-facing stock that should lead the charge when the next bull run begins.
