£10,000 invested in easyJet shares 5 years ago is now worth…

The days of Covid-19 are in the past, but despite a strong recovery in revenues and profits, easyJet shares are well below their pre-pandemic levels. 

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Five years ago, easyJet (LSE:EZJ) shares were about to fall out of the sky as Covid-19 brought travel restrictions and disruption. Travel demand has recovered well since then, but the stock has not. 

Created with Highcharts 11.4.3easyJet Plc PriceZoom1M3M6MYTD1Y5Y10YALL25 Jan 202025 Jan 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520212021202220222023202320242024www.fool.co.uk

The share price is still 60% below its pre-pandemic levels, meaning a £10,000 investment made five years ago has a market value of £3,958. But with the business making progress, is the stock a bargain?

Recovery

The recovery in easyJet’s business is clear from its income statement. With the return of travel demand, the company’s revenues have bounced back and are now well above pre-Covid levels.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

easyJet revenues 2015-25


Created at TradingView

The balance sheet, however, is still an ongoing project. The company’s total debt stands at £3.9bn, which is three times where it was in 2020 and limits the firm’s flexibility if demand drops.

It’s also a lot in the context of a business that generates £597m in operating income each year. And £130m of that gets spent on making interest payments on its outstanding loans. 

Despite this, easyJet’s operating income has actually recovered quite impressively. While this is being weighed down to some extent by higher borrowing costs, it’s roughly back to 2020 levels.

easyJet operating income 2015-25


Created at TradingView

The trouble is, the company’s share count is also a lot higher than it was in 2020. Instead of 397m shares outstanding, there are now 759m – an increase of around 91%. 

That means the impressive operating profit has to be divided by almost twice as many shares. And this – along with a weaker financial position – is why the stock is well below where it was five years ago.

Outlook

In order to reduce its outstanding shares, easyJet is going to have to buy them back. But having issued them at low prices, repurchasing them could look quite ugly. 

As a result, the firm has moved to reinstate its dividend as an alternative way of returning cash to investors. I think this is a good move – and there’s more for investors to be positive about. 

The company has made some progress in bringing its debt level down. And if it can keep doing this, interest payments should be lower and profits should rise over time. 

This formula has worked for Rolls-Royce over the last couple of years and it doesn’t take much imagination to think it could work for easyJet as well. But the longer it takes, the riskier it becomes.

Outside shocks – such as pandemics or Icelandic ash clouds – can be impossible to predict. But they do happen and it’s important for airlines to be in a strong position to meet them when they do.

At the moment, easyJet is still working its way through a significant amount of debt. And until it manages to do this, I think it’s unusually vulnerable in the event of a downturn. 

Long-term investing

Investors buying easyJet shares during the pandemic might have expected things to go back to normal pretty quickly. But while revenues and operating profits have recovered, the share price hasn’t. 

The reason is the firm’s balance sheet and share count are still a long way from where they once were. And these long-term concerns are enough to put me off the stock at the moment.

British CEO gobbles up £238,000 of own stock

What company does he run?

And why is he so confident in its long-term potential?

This new report - ‘One Top Growth Stock from The Motley Fool’ - reveals the full details, both risks and opportunities. Some of which you may find frankly, unbelievable.

Though past performance does not guarantee future results, over the past 5 years, it’s seen consistent:

  • Double-digit revenue growth
  • Returns on capital almost 600% the UK average
  • Now, profits are exploding again - up 46% in 1 year!

It’s no wonder insiders are buying this stock hand over fist. Last year, they bought a total £492,000 of shares. And now might be the ideal moment to join them.

So please, don’t miss this report, ‘One Top Growth Stock from The Motley Fool’ Including both risks and opportunities.

Secure your FREE copy now

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.

Stephen Wright has no position in any of the shares mentioned. 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

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s my Stocks and Shares ISA plan for 2025-26

A Stocks and Shares ISA helps investors avoid taxes on dividends and capital gains. And Stephen Wright has a plan…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »