£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.

Should you invest £1,000 in easyJet right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if easyJet made the list?

See the 6 stocks

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.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »