Is the roller coaster now over for easyJet (LSE:EZJ) shares? The FTSE 250 stock’s been more volatile than most after the Iran war began in late February. But developments this week suggest conditions could be much calmer from this point on.
Over the last month, easyJet’s share price has tumbled 19.2%. As a result, someone who put £5,000 in the budget airline on 2 March would have seen the value of their investment fall by £960, to £4,040.
Despite its recent price uptick, I have a nagging feeling the FTSE company might dive again.
Three huge threats
As I say, easyJet shares have picked up in recent hours. The reason? President Donald Trump stated that the US will withdraw from the Middle East conflict in “two or three weeks“.
Stocks across the global market have risen on the news. But airline stocks are especially vulnerable to a prolonged conflict, meaning their price gains have been especially strong. For easyJet, the war has had a three-pronged impact:
- Driving up fuel costs due to oil supply disruptions
- Causing flight disruptions to places like Tel Aviv
- Damaging consumer spending by raising inflationary expectations and slowing economic growth
It’s easy (no pun intended) to see why shares have leapt on Trump’s comments. But have investors been premature in diving back in? Signals from the White House on a planned withdrawal have been mixed from day one. Furthermore, statement from Iran are also painting a different picture to what the US president says — leaders there have dismissed the Trump’s claims that Iran has asked for a ceasefire as “false” and “baseless“.
A high-risk FTSE 250 stock?
I’m as much in the dark as to what’ll happen on the war front as anyone else. But that’s my point. Share prices have marched up and down on claims and counter claims since the war began. It’s possible this could be another such episode.
It may be worth taking a step away, then, and considering other factors that could impact easyJet’s share price. Unfortunately, this causes me more worry, not less.
The thing is, easyJet was already under pressure before the conflict kicked off. Revenue per available seat kilometre (RASK) is a key performance metric, showing how much revenue the airline generates relative to capacity. And this failed to grow year on year in the December quarter, reflecting rising competitive pressures and softening ticket prices.
That wasn’t all, as a combination of rising investment and a competitive landscape meant underlying pre-tax losses widened in the quarter, to £93m from £61m.
Are easyJet shares a buy?
There’s a lot the Luton flyer has in its favour over the long term. Passenger demand is tipped to rise strongly, and the firm’s wide operational footprint and economies of scale puts it in good shape to seize the opportunity.
But on balance, I’m not tempted to buy easyJet shares for my own portfolio. Thin profit margins, intense competition, volatile oil prices, and flight disruptions are just a few ever-present threats that investors have to swallow. Though more adventurous share pickers may fancy a look, I’m moving on and searching for other stocks to buy.
