Over the past year, the easyJet (LSE:EZJ) share price is up 26.5%. This has vastly outstripped the FTSE 100 performance. However, after just managing to post fresh 52-week highs earlier this week, the stock is now starting to move lower. Here’s why I think the coming couple of months could be key for the long-term direction of the stock.
Key times ahead
Understandably, the pandemic was a tough time for business operations. From highs of over 900p in the first half of 2021, it traded below 300p in late-2022. easyJet managed to survive, with travel and tourism picking up again. Yet from the perspective of the share price, it hasn’t managed to reach levels near 900p.
In fact, in April last year, the stock experienced a sharp rally that peaked close to the level it’s at now. After falling lower, another surge in December took it back to almost the identical price before again dropping. Now, for a third time, optimism in recent months has pushed the share price just a few pence higher than before, but it is now starting to move lower.
This shows me that some investors are cautious about breaking the shackles and trying to return to the pandemic prices.
Finances are improving
From a fundamental perspective, a move to new highs would make sense. Revenue for 2024 was £9.31bn, up almost 14% from the previous year. In 2023, the business flipped back to posting a profit, which increased last year.
The latest update reaffirmed that the company is on track to deliver the medium-term target of £1bn in profit before tax. This is based on “capacity investments (that) are driving productivity and utilisation benefits, providing a platform to structurally reduce winter losses and further grow our profitable summer period”.
With a price-to-earnings ratio of 9.48, it’s below the benchmark figure of 10 that I use to assign a fair value. Therefore, the share price can move higher without it becoming overvalued anytime soon.
Waiting for direction
Even though an investor could think about buying now, I think waiting to see how the coming weeks pan out may be wiser. I’m keen to buy the stock if it pushes beyond 600p. This momentum would likely see more investors jump on board who have been sitting on the sidelines as well.
I think the company is progressing well, and it has already surprised me that it hasn’t already returned to the 2021 levels. However, one risk is competition. In the short-haul space, it’s a fierce game where market share can quickly evaporate if the management team doesn’t stay one step ahead.
Therefore, I’m adding easyJet to my watch list, in what promises to be a very interesting period for the company.
