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Why the easyJet share price makes the airline an instant buy for me

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The easyJet (LSE: EZJ) share price has crumbled this year. The stock has fallen 65% from its 52-week high of 1,500p printed at the end of February. 

You don’t have to look far to understand why investors have been selling shares in the discount airline. The coronavirus crisis hit the airline sector like a hurricane. Many carriers, including easyJet, were forced to ground their fleets as travel restrictions were imposed around the world. 

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Following the grounding of its fleet, the airline had to deal with the nightmare scenario of having no income. Unfortunately, easyJet also still had bills to pay.

A mad scramble for cash followed. The airline tapped investors and its lenders for funds to keep the lights on. It also sold some of its aircraft

These efforts have stabilised the business and put it on a firm financial footing. And now the company has alleviated its near-term cash concerns, I think the easyJet share price looks attractive. 

easyJet share price advantages 

easyJet is one of the most successful airline groups in Europe. Its orange planes are immediately recognisable, and consumers trust the brand.

This trust has helped the firm expand. Last year it started a package holiday business to complement its existing airline operations. 

Prior to the coronavirus crisis, the company was also extremely well run. It had some of the best profit margins of the sector and a clean balance sheet.

At the end of 2018, the group’s net cash balance was £400m. This healthy financial position has helped the corporation navigate the crisis. Many of its European peers have had to be bailed out by their respective governments. Some have even collapsed. 

That said, the crisis has weakened easyJet’s balance sheet. However, the company’s financial performance in the past suggests management will act quickly to clear up the group’s debt. This could help improve sentiment towards the easyJet share price in the long term. 

A strong balance sheet will also help the business better compete with struggling European peers. 

Cheap stock 

All of the above makes me think that the easyJet share price is undervalued.

After falling 65% in 12 months, the shares seem to offer a margin of safety at current levels. What’s more, the airline has tentatively re-started flights. This should help reduce the pressure on the group’s balance sheet. 

Clearly, it’s unlikely to be a smooth ride for the company from here. The pandemic continues to rumble on, and demand for air travel could take years to return to 2019 levels.

However, it seems to me that easyJet has the qualities required to ride out the crisis. As one of the strongest airlines in Europe, the group may also be able to capture market share from smaller peers.

If the group can grab market share, profits may surge to new highs. That could help the easyJet share price hit a new high as well. 

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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.

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