Over the last 12 months, the FTSE 100 has been firing on all cylinders, delivering a jaw-dropping 20.5% total gain. That’s almost three times the usual 8% the UK’s flagship index typically produces. However, sadly, not every business was able to share in this triumph.
Among the list of underperformers lies easyJet (LSE:EZJ), which has actually seen its market-cap shrink by almost 10% since December 2024. As a result, the airline stock is now trading at a seemingly dirt cheap forward price-to-earnings ratio of 6.9 – one of the lowest in the entire index.
Is this a screaming buying opportunity? Or a warning for investors to stay away?
A potential bargain?
Despite what the downward trajectory of easyJet shares suggests, the group’s latest results were actually pretty encouraging.
During its 2025 fiscal year (end in September), the group delivered 9% top-line revenue growth paired with a similar increase in pre-tax profits reaching £665m. In fact, 2025 marked easyJet’s third consecutive year of earnings growth, putting it firmly on track to reach its medium-term target of £1bn.
There are a lot of factors at work here. But a big source of this success originates from its easyJet Holidays segment, which expanded by an impressive 27%. This was driven by a combination of higher demand from new customers as well as upward adjustment in prices for package holidays, resulting in an impressive 32% jump in pre-tax profits to £250m.
That’s notably ahead of expectations. And management has subsequently raised its medium-term target to £450m in pre-tax profits by September 2030.
Combining all this with a continued increase in seat capacity and higher passenger volumes, the business seems to be performing admirably right now. So why is the share price still struggling to take off?
What’s going on with easyJet?
Even with the solid progress made, analysts have flagged several uncertainties surrounding this low-cost carrier. Economic volatility across Europe could be an early warning sign of an incoming slowdown in discretionary consumer spending. And historically, that’s meant lower demand for holidays.
At the same time, management’s warned that profit margins for its 2026 fiscal year are likely to face some pressure as a result of wage inflation, increases in environmental levies, ongoing aircraft maintenance, and higher airport charges. That’s despite the group’s efforts in delivering operational efficiencies.
The combination of demand uncertainty and rising operating costs is understandably making investors nervous. And easyJet isn’t the only short-haul airline stock suffering as a result, with Wizz Air Holdings also taking a similar tumble.
The bottom line
While the group’s medium-to-long-term potential remains promising, the company faces a lot of near-term headwinds that are introducing considerable uncertainty. Management’s established a large hedging position for fuel next year that should help protect the bottom line from sudden price spikes.
But with little recourse against other cost increases, and fierce competition limiting its ability to pass on costs to customers, this FTSE 100 stock may not be a terrific investment to consider after all, even with a seemingly dirt-cheap share price. Fortunately, there are plenty of other undervalued opportunities to explore.
