The easyJet (LSE: EZJ) share price has plunged over the past few weeks. After these declines, the stock is trading at its lowest level since 2013. It’s also trading at a discount of around 10% to the value of its assets. That implies the shares offer a wide margin of safety at current levels.
The question is, should investors buy the easyJet share price after recent declines, or should they avoid the business altogether?
Is the easyJet share price on offer?
EasyJet has been forced into survival mode to cope with the coronavirus outbreak. The company has laid off thousands of staff and stabilised its balance sheet.
The ultimate impact on the business depends on how long the global economic shutdown lasts. Management believes the company has enough cash to keep the lights on for some time. In its latest trading update, easyJet announced it expects to have access to cash reserves of £2.3bn by 9 April.
The budget airline’s founder, Stelios Haji-Ioannou, is less optimistic. He believes unless the company cancels a £4.5bn order for new aircraft from manufacturer Airbus, it will run out of money by August. Even in this most pessimistic scenario, easyJet has several months of breathing space.
Its likely management will cancel this order if the situation continues to deteriorate over the summer. That should buy the business several more months.
As a last resort, the company can always turn to shareholders, as other companies have done over the past month. A cash call would hurt the easyJet share price in the near term, but it would support the airline’s stability.
With this being the case, I’m cautiously optimistic about the outlook for the easyJet share price. The company is going to lose money for the next few months, sure, but it remains one of the most recognisable airline brands in Europe. It also has plenty of access to funding, which gives the business breathing space over the next few months.
What’s more, when the carrier is allowed to restart flights, there should be plenty of demand for its low-cost offering as holidaymakers scramble to get out of the UK after months of lockdown.
The company can also benefit if some of its weaker peers are forced out of business. That would allow easyJet to increase prices in a tight market. Higher prices would help the easyJet share price.
On the other hand, if the coronavirus outbreak continues to ravage the global economy throughout the summer, it’s not possible to say, at this stage, if easyJet will survive.
Therefore, this investment is only really suitable for the most risk-tolerant investors with a long-term time horizon. It’s also unlikely the company will pay a dividend for the foreseeable future.
As easyJet is struggling to stay alive, it needs all the money it can get at the moment. That’ll continue to be the case until operations return to normal.
So, overall, if you’re willing to take on the risk, the easyJet share price looks to offer value at current levels.
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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.