Over the past 12 months, the easyJet (LSE: EZJ) share price has cratered, falling a total of 27% excluding dividends.
Including dividends, the stock’s performance has been slightly better. On a total return basis, the shares have lost 26% over the past 12 months, underperforming FTSE 100 (including dividends) by around 30% over the same timeframe.
The question is, do I think investors should make the most of these declines and buy into easyJet today, or is there a chance this could be just the beginning of a much bigger slump?
Buy, sell or hold?
The way I see it, there are several reasons why its shares have lagged the FTSE 100 over the past 12 months.
Firstly, there’s Brexit. Investors and analysts alike are worried about the impact this may have on airlines like easyJet as they struggle to grapple with increased regulation and border controls that will be introduced if the UK leaves the European Union without a deal at the end of March.
Secondly, easyJet is facing rising competition and rising costs, which is hitting the firm’s bottom line. Indeed, companies across Europe are trying to copy the group’s low-cost operating model, and this is having the impact of driving down ticket prices, but costs remain fixed.
These factors are expected to weigh on earnings in 2019 with analysts anticipating a decline of 11%. A recovery is expected in 2020, although considering how quickly the environment can change in the airline industry, I’m not willing to give the company the benefit of the doubt here.
Considering all of the above as uncertainty prevails, I think shares in easyJet deserve their current multiple of just 10.2 times forward earnings, so I’m not a buyer at the moment. However, I’m not a seller either. If you already own the shares, I think it’s worth holding on as the firm’s dividend yield of 5% is highly attractive.
Stobart Group (LSE: STOB) sits at the other end of the airline industry spectrum. I’m much more positive on the outlook for this business because, as the number of planes flying around the world is expanding rapidly, the number of airports remains relatively constant.
As the owner of Southend Airport, Stobart is looking to capitalise on the booming demand for air travel by expanding. It wants to boost capacity to 10m passengers a year in the near term — up from 1.5m last year.
To fund this expansion, the company, which recently acquired regional carrier Flybe with Virgin Atlantic, has today announced it’s cutting its dividend from 15p last year to 6p. While disappointing, I think it’s the right decision as it will free up cash to invest for the long term.
It’s a bit difficult to place a value on Stobart at the moment because most of its value is tied up in assets. I think this is more of a blue sky growth opportunity. Over the next few years, as the company dramatically increases the number of passengers flying from Southend, earnings could surge.
Analysts are already expecting earnings growth of 90% for fiscal 2020 as Ryanair starts flying from Southend in a few months. Over the long term, this could be a great way to play the growth of the global aviation industry.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.