easyJet (LSE: EZJ) shares have fallen 64% over the past five years, for perhaps obvious reasons.
For the six months to 31 March, the budget airline just (21 May) posted a headline loss before tax of £552m. That’s even worse than the £394m loss in the first half of last year. But back then, there was no Iran conflict pushing fuel prices through the roof.
And even before that, Covid, Ukraine war, soaring inflation… are not the things to get people spending money to jet away for holidays in the sun.
Nearing a pivot?
Despite conflict in the Middle East creating near‑term uncertainty, easyJet is well placed to manage the current environment, supported by one of the strongest investment‑grade balance sheets in European aviation.
— CEO Kenton Jarvis
That statement by the CEO falls very much into the category of putting a brave face on it, I’d say. And he added the company aims “to bounce back from this year’s Middle East-related setbacks, and then further progress towards our medium-term financial targets and deliver attractive shareholder returns as the operating environment normalises.“
Can easyJet weather the storms? One thing stands out to me in the boss’s statement — his mention of the balance sheet. Liquidity is what’s needed to see a company through a tough spell. And that appears fine to me.
We’re looking at adjusted net cash of £434m — excluding lease liabilities, but I think that’s fair. And easyJet enjoys total liquidity of £4.7bn, with assets worth a book value of £5bn.
The questions to ask
Other than the balance sheet, to be honest, I don’t think this current set of results really means much. Investors need to look beyond this year. And for me, that means a handful of key questions…
- Is there enough liquidity for the short term? Yes.
- Does the industry have good long-term potential? Yes.
- Is easyJet one of the best managed airlines in the business? Yes.
- Do earnings and valuation forecasts look attractive? Yes.
Those are my personal, subjective, answers. But I feel fairly confident in them.
On the valuation front, forecasts put easyJet’s full-year price-to-earnings (P/E) ratio at around 11.5. And that might not exactly sound screamingly cheap. But then earnings forecasts would drop that to under five by 2028 — and is that a scream resounding in my ears?
What to be careful of
I do see a couple of red flags, mind.
Where do the City analysts get those figures? They must surely base them on how a normal year for easyJet should look in the absence of today’s threats. And what a normal world of aviation might be like when not blighted by global conflict. Those scenarios are not without risk.
And of course, airlines can be very volatile businesses, held hostage to all manner of difficulties outside their control. That’s why I’ve never bought airline shares.
But you know what? I’m genuinely considering easyJet shares right now. There’s always a first time. And with the price so far down, this might be it.
Should you invest £5,000 in easyJet Plc right now?
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Alan Oscroft does not hold any positions in the companies mentioned.
