The last time I covered easyJet (LSE: EZJ) shares was on 1 September. At the time, I wrote that, in my view, “it wasn’t a great time” to be buying EZJ stock. I said that the high level of uncertainty related to Covid-19 made the shares a risky proposition.
Fast forward to today and that now looks like a good call. On 1 September, easyJet’s share price closed at 603p. Yesterday, the stock closed at 506p. That means EZJ has fallen 16% in less than a month. Hopefully, my article saved some investors from losing money.
So, what’s my view on easyJet shares today? Is the stock worth buying now that it’s 16% cheaper than it was at the start of September? Let’s take another look at the investment case.
easyJet shares: news is dire
Starting with news from the company itself, this has not been encouraging.
On 8 September, easyJet advised that, due to “constantly evolving government restrictions across Europe and quarantine measures in the UK,” customer confidence had been negatively affected. As a result, the airline said it expects to fly slightly less than the 40% of planned capacity for Q4. The company also said that it could not supply any earnings guidance for 2020 or 2021.
This is an issue I warned investors about in my last article on easyJet shares. With governments constantly changing travel rules, life is going to be very difficult for the airlines. Worryingly, I think the situation could get worse before it gets better.
The recovery has gone into reverse
News in relation to the European airline industry doesn’t look good either. In a recent report, Eurocontrol, Europe’s air traffic watchdog said that the total number of passenger flights in Europe will plummet by more than expected this year as countries fail to coordinate policy on air travel.
Eurocontrol believes trips in 2020 will now total six million – one million fewer than forecast in April. “We’re going backwards now and it’s really worrying for the entire industry,” commented Eamonn Brennan, head of Eurocontrol.
Hanging by a thread
It’s also worth pointing out that industry experts are worried about easyJet’s financial situation. At the weekend, BBC News reported that one airline union official believes that easyJet is “hanging by a thread.”
The firm has denied that this is accurate. However, I think it’s worth keeping these claims in mind if you’re considering investing in easyJet shares.
Finally, investors should note that analysts continue to reduce their earnings forecasts for easyJet. Over the last month, the consensus earnings per share forecast for the year ending 30 September 2020 has fallen from -134p to -144p. Earnings downgrades tend to put negative pressure on a company’s share price. This could limit near-term share price upside.
Better opportunities than easyJet shares
Putting this all together, my view on easyJet shares remains the same. I think this is a stock to avoid for now.
Why take a huge risk on EZJ shares when there are so many great companies you could invest in right now?
Edward Sheldon has no position in any 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.