easyJet (LSE: EZJ) shares have been in freefall over the past month. The share price has lost 26% in value on the back of worries about the conflict in the Middle East. A £10k stake invested just 4 weeks ago is now worth approximately £7,420.
Here’s another way of looking at it. Investors today can pay just over £7k for the value of £10k in easyJet shares one month prior. If the panic has been overdone, then this might be a golden opportunity to buy in at a 26% discount. The big question becomes: is this huge fall a rare chance to pick up dirt-cheap shares or is the drastic fall in share price justified?
Falling knife?
To understand whether this is fleeting discount or falling knife, budding investors must understand the nature of the drop. There are three particular points of concern arising from the current Iran conflict.
Fuel costs is the obvious one. Airlines are sensitive to the cost of fuel and rising oil prices could destroy margins. easyJet, like all airlines, hedges fuel costs ahead of time, so there is no need for short-term panic. The worry is a prolonged that which keeps oil costly over the long run.
In terms of the operations, easyJet runs mostly European flights, which are unaffected by the closure of airspace further afield. It’s worth pointing out, however, that scheduled trips to Tel Aviv have been suspended indefinitely so this is a cause for worry too.
There are also the effects of rerouting. Planes are having to extend journeys to avoid problem areas, which impacts efficiency and, most crucially of all, uses up more fuel.
Humming along
What to make of all that then? The thing that stands out to me is how reversible it all is. If we get a swift resolution to the ongoing conflict (which I’m sure we are all hoping for) then many of the above problems could be swept away too. Although I will say that it seems like consumer confidence in holidaying and flying to or near the affected regions seems to have already been shaken.
But if we look past the recent issues then we have a company firing on all cylinders. The success of the business can be summed up with easyJet holidays – its package holidays division that only began in 2019 yet is now seeing hundreds of millions in earnings and growing at 20% or more for the last couple of years.
Profits are growing across the rest of the company too, up 9% in the last financial year. It’s rare to see growing companies trade at the valuation easyJet has sunk to – its price-to-earnings ratio of 5.51 looking very cheap to my mind.
The last word? Of course, there are risks here, and 2026 is shaping up to be a somewhat unpredictable year. But easyJet shares could end up being at a low point when looking back, to my mind. I think they’re worth considering.
