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The easyJet share price is up 50%. Here’s why I still think it can be a bargain buy

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Few sectors have been hit harder by Covid-19 than travel and entertainment, for obvious reasons. The lockdown brought their operations to a halt and their share prices tumbled as a result. The FTSE 100 low-cost airline easyJet (LSE: EZJ) is one of them. The easyJet share price dropped to a low of 495p in mid-March, a huge 17% fall in a single day. 

But here’s the good news. It has risen sharply from that level, up almost 50% at the last close as I write. It’s almost 40% up even from the last time I wrote about it, earlier this month. There are several reasons for this. One, discontent on part of Stelios Haji-Ioannou, who along with his family, is the biggest investor in EZJ, on the impending purchase of planes, finally came to a head a few days ago. The easyJet share price reacted favourably to the development, rising by 19% as this news broke. 

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Lockdown easing to buoy easyJet share price

Two, with lockdowns around the world likely easing in the next few weeks, easyJet and its like will be back in (some) business. Barring another wave of coronavirus-related infections, the worst is well and truly over for all businesses that require extensive social proximity. It’s hardly surprising then, that it’s not just the easyJet share price, but also those of other FTSE 100 travel and tourism companies like International Consolidated Airlines, Carnival, and TUI that have shown increases in the past month. 

Three, the FTSE 100 index is on the mend in any case. At its last close, the index was almost 25% higher than the bottom seen during the stock market crash. In line with this, share price fortunes across companies have seen an upswing. Stock prices of companies least affected by Covid-19 and the ensuing recession were holding up well in any case. Swift policy actions to ensure ample systemic liquidity provided a floor. As the situation eases, stocks sensitive to economic cycles and the lockdown have started picking themselves up from this floor now. 

Crystal ball gazing

Following from this, lastly, the easyJet share price might have started rising, but it’s still far from its levels earlier in the year. In early February, it was more than double the current levels. Of course, the on-the-ground reality has changed ever since. It will be some time before EZJ can return to its former financial health. Yet, optimistic share price forecasts, according to Financial Times data, expect its share price to reach beyond the highs of 2020 in a year. Even the average forecasts expect it to be around the present levels. 

If I’m bullish on a sharper stock market and economic recovery, I’d buy EZJ shares at the current price. But I think the more risk-averse among us would keep it on the watchlist and buy it on a dip. 

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Manika Premsingh 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.

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