The Motley Fool

The easyJet share price has slumped 30%. Buy, sell or hold?

Image source: Getty Images.

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

Growth opportunity

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.