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Has the stock market crash made the easyJet share price a bargain?

Many FTSE 100 stocks have recorded significant share price declines in the recent stock market crash. As such, now could be a great time to snap up shares in some of these blue-chip giants. One company in particular stands out. The easyJet (LSE: EZJ) share price is one of the FTSE 100’s worst performers in 2020.

The stock has fallen 56% year-to-date. That’s compared to a loss of 24% for the broader index.

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However, while further drops cannot be ruled out, the easyJet share price appears to offer impressive total return potential from a long term perspective.

easyJet shares on offer

The easyJet share price has come under selling pressure due to concerns about the company’s viability. The company has been to forced to ground virtually all of its fleet due to the coronavirus crisis. This has put an immense strain on its finances.

Initially, investors were concerned that this strain would lead to the collapse of the business. But the company has acted quickly to shore up its balance sheet.

The firm has signed two new loans worth £400m, borrowed money through the Bank of England’s bond-buying scheme and agreed sale-and-leaseback deals on some of its aircraft.

These efforts should give the business enough cash to survive at least nine months with no flights. The total cost of such a grounding will be £3bn. The cash raised has helped stabilise the easyJet share price. 

If the airline is forced into a longer grounding, management says it will consider other funding options. Therefore, it looks as if the immediate threat to easyJet’s survival has been removed.

Good value

Following recent declines, it looks like the easyJet share price offers excellent value for money, considering the company’s strong financial position.

While the business is almost certainly going to encounter further turbulence in the near term, over the long run, easyJet could offer an attractive return for investors.

The business has a strong brand and is more financially stable than virtually all but one or two of its low-cost peers. Some have already gone out of business. Indeed, customers are already queuing up to book flights with the airline for the second half of 2020 and into 2021.

Survival of the fittest

When it comes to the survival of the fittest, easyJet has the resources and customer base to help see it through the current uncertain environment.

What’s more, the airline has long-term growth potential in an industry that is likely to experience rising demand.

Having said that, as it is impossible to tell, at this stage, when airlines will be allowed to start flying again, investors should take a cautious approach.

So, while it looks as if the easyJet share price could be an excellent long-term investment after recent declines, the best solution may be to own this stock as part of a diversified portfolio. This would allow investors to benefit from the company’s recovery while minimising risk at the same time.

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Rupert Hargreaves has no position in any of the shares 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.