Can easyJet soar like the Rolls-Royce share price?

Harvey Jones is looking for FTSE 100 stocks that can match the success of the Rolls-Royce share price. Budget carrier easyJet looks like one of the most promising.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rolls-Royce (LSE: RR) shares have grown wings lately, flying an eye-watering 98% in 2024 and an astonishing 350% over three years. 

At the same time, easyJet (LSE: EZJ) has struggled to get off the runway. The budget airline’s share price has slipped 2% over the last 12 months and 23% over three years. Over five years it’s down 60%.

I’m baffled by struggling easyJet shares

That dismal showing surprises me for two reasons. First, both FTSE 100 companies have been subject to the same sectoral forces. 

As an aircraft engine maker, Rolls-Royce has benefited from the explosion in pent-up demand for flights as Covid lockdowns pandemic receded into memory. As did British Airways owner IAG, the only FTSE 100 stock to outpace Rolls last year. So can easyJet’s shares soar while Rolls-Royce steadily level off?

The Rolls-Royce recovery was driven by the resurgence in long-haul travel, with increased engine flying hours translating into higher revenues for its civil aerospace division. Investors have also been wowed by its successful restructuring efforts under transformative CEO Tufan Erginbilgiç.

Better still, its defence and power systems segments have also provided steady growth, offering diversification and resilience.

Yet the engineer’s meteoric rise has now priced in a lot of good news and the shares look pricey trading at 41 times trailing earnings. The group has worked down its debt pile but still has to invest heavily in new technologies like sustainable aviation fuel and hybrid-electric engines.

We’re also waiting to see whether new ventures such as its mini-nuclear reactors will cook up a new line of revenue. While Rolls-Royce shares risk flying too close to the sun, easyJet has gone a little cold.

It’s struggled with rising fuel costs, operational disruptions, and stiff competition in the European short-haul market. Passenger demand has been rising steadily and its fast-growing easyJet holidays division is doing well, but as inflation returns customers may feel the squeeze.

This looks like a top FTSE 100 value stock

The shares have slumped 15% in the last month, primarily due to higher inflation expectations and the hullabaloo over UK gilt yields.

With the easyJet share price now trading at just 8.1 times earnings, it surely offers much better value than Rolls-Royce.

easyJet has a solid balance sheet, decent brand and has built a strong position at key European airports. I think its shares could take off again when the economy does. But when exactly will that be?

I hold Rolls-Royce shares and won’t buy more. It’s no longer a rocket ship, more like an ocean liner. But I don’t hold easyJet. Following the recent dip, I’m tempted to buy.

The 20 analysts offering one-year share price forecasts have produced a median target of just over 718p. If correct, that’s an increase of almost 45% from today. That’s a stellar potential return. I think it’s a little of the optimistic side.

2025 looks like a bumpy year for the UK and Europe. I think the easyJet rebound will take some time, but today, the share potentially offers a brilliant entry point for patient long-term investors. Any signs of a turnaround could drive a significant re-rating. One day, easyJet could do a Rolls-Royce. Or IAG for that matter. I’ll buy the moment I’m feeling brave enough.

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.

Harvey Jones has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. 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.

More on Investing Articles

Investing Articles

Would Warren Buffett buy BP shares, as oil excitement grows?

Warren Buffett is a big investor in the oil business, and BP's performance has been attracting investor attention in results…

Read more »

Cropped shot of an affectionate young couple posing with a bunch of flowers in their kitchen on their anniversary
Investing Articles

Here’s how long-term loyalty to UK shares can lead to dazzling returns!

The most successful UK and US share investors buy shares to hold for the long term, as this report shows.

Read more »

Investing Articles

NatWest has just smashed brokers’ dividend forecasts!

After NatWest delivered a Valentine’s Day surprise to investors, our writer thinks the experts may have to raise their dividend…

Read more »

Investing Articles

The NatWest share price slips in early trading despite positive FY 2024 results. What’s the deal?

The NatWest share price is down slightly this morning after the bank released its final results for 2024. Our writer…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

My Legal & General shares have climbed just 7% — so how come I’m sitting on a 20% gain?

Harvey Jones' trading account is showing only a modest return on his Legal & General Shares, but on drilling down…

Read more »

Investing Articles

Prediction: the BP share price could rise in 2025 (or it might fall!)

Following this week’s release of the energy giant’s 2024 results, our writer reviews the prospects for the BP (LSE:BP.) share…

Read more »

many happy international football fans watching tv
Investing Articles

What’s gone wrong with the FTSE 100’s ‘King of Trainers’?

Feeling the pain of a 28% drop in the JD Sports share price over the past three months, our writer…

Read more »

Investing Articles

Is it too late for investors to consider buying these outstanding FTSE 100 shares?

Stephen Wright wonders whether now's the time to consider buying shares in the FTSE 100’s outstanding companies, despite some high…

Read more »