Is it finally time to buy easyJet shares, down 51%?
It’s not difficult to see that easyJet (LSE:EZJ) shares have taken a bit of a pounding over the past couple of years. Battered by the pandemic, the share price isn’t too far above the 52-week low. Is there a chance, though, that the only way is up from here on? Let’s take a closer look.
Improving financial results
Over the past year, the shares have fallen by 51% and in the last month they’re down 21%. At the time of writing, they’re trading at 368p.
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Much of this downward price movement arose from the grounding of flights due to the pandemic. This meant that revenue collapsed and the company – a short-haul airline – started posting losses.
For the year ended September 2020, for example, the firm reported a pre-tax loss of £1.2bn. This was down from a £430m pre-tax profit in 2019. In more encouraging news, the business managed to narrow the 2020 loss to £1bn in 2021.
More recent financial results paint an even brighter picture. Pre-tax losses shrank to £557m for the six months to 31 March, compared to £645m the previous year. Over the comparison period, revenue surged from £240m to £1.5bn.
More passengers, more planes
Other metrics by which I judge airline performance are passenger capacity and load factor. These numbers understandably dwindled to very low levels during the pandemic but, for the three months to 30 June, the company forecast capacity to hit 90% of 2019 levels.
Although these results have not yet been published, I’ll be on the lookout for the final figure. What’s more, the firm believes that capacity will hit 97% of 2019 levels for the three months to 30 September, with an estimated load factor of 90%.
If the airline can actually achieve these results, then I think it will be leading the field in its industry’s recovery.
There are risks, however. Firstly, the rapid increase in demand following the relaxation of restrictions has overwhelmed the business, leading to the cancellation of numerous flights.
In addition, it’s scrambling to recruit enough cabin crew to meet safety requirements, even promising a £1,000 sign-on bonus.
Furthermore, there’s the chance of strike action from employees, together with the surging cost of jet fuel, brought on by abnormally high oil prices.
Finally, the cost-of-living crisis may ultimately result in a fall in demand over the long term as would-be customers have little disposable cash with which to buy plane tickets.
Overall, it appears that easyJet is recovering from a very difficult time during the pandemic. While it’s not quite at 2019 levels yet, I don’t think this is very far away. Nevertheless, the broader economic environment is putting even more pressure on the firm and I’ll wait for this to subside before adding it to my portfolio.
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