easyJet (LSE: EZJ) shares have been on a far from easy ride in the last few years. Since a surge pre-pandemic, the FTSE 250 stock has seen its share price drop off, ultimately ending with its demotion from the FTSE 100.

This comes as no real surprise. The pandemic caused monumental disruption to easyJet and its peers’ operations. And the Covid hangover, signposted by red hot inflation, has further created unfavourable conditions for the business.

Despite this, the stock has rallied in 2023, rising an impressive near-40%, predominantly due to a 50% jump back in January. However, following its strong start, it’s been on a steady decline.

So, will the stock regain its fine form of January? And should I be adding it to my portfolio?

Plenty to like

Despite the lagging share price, easyJet has quite a lot of momentum at the moment. That’s according to a recent trading update from the firm.

For the third quarter ended 30 June, the budget airline saw passenger growth of 7% year on year. And along with a revenue per seat increase of 23%, it posted pre-tax profit of £203m (versus -£114m the year prior). Looking ahead, CEO Johan Lundgren recently stated he expects another record pre-tax profit performance in Q4.

The stock also has a forward-looking earnings multiple of around 8. With the benchmark for value around 10, this shows easyJet shares seem to offer good value.

On top of this, predictions of double-digit growth through to 2025 push it as low as 6. These are encouraging signs.

Major risks

While there’s plenty to like, I have my concerns about easyJet.

Namely, the business faces the risk of the ongoing industrial action that has plagued the industry this summer. easyJet recently stated disruption at air traffic control was at “unprecedented” levels.

Among my other concerns is the highly cyclical nature of the airline industry. When issues such as inflation and a rising cost of living continue to dictate consumer spending habits, as is the case now, the risk of falling demand is always lingering. Despite its impressive recovery, we could see this play out in the second half of the year, a concern voiced last month by Ryanair CEO Michael O’Leary.

Rising fuel costs could also add to these woes, especially given its thin margins. And should the extreme wildfires seen this summer become a regular occurrence, future holiday cancellations could mean revenues take a hit. Granted, I don’t deem this a major issue and with their short-term memories, I expect holiday makers to resiliently move on. But it’s worth noting.

What I’m doing

There’s certainly a case to be made for easyJet shares. And the business has posted a strong recovery since the pandemic.

However, I’m not keen on adding the stock to my portfolio right now.

The business faces a variety of problems that could stunt its long-term profits and growth. And given this risk, I’m not confident its share price will be taking off any time soon.

I see plenty of value in UK shares today, so I’ll be looking at other FTSE 100 and FTSE 250 stocks to pick up.

The post This FTSE 250 stock continues to fall. Is it time to buy? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Charlie Keough 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.

Airline travel was decimated by the pandemic. Most of the market leaders saw their stock prices slump as flying hours decreased to near zero. easyJet (LSE: EZJ) was no different and saw its stock fall over 60% between February and March 2020.

In 2022, even though flying hours have drastically improved, easyJet shares are still down 41% year-to-date. Over a 12-month time span, the shares have fallen 47%. I think this could be a prime opportunity for me to buy the stock at a beaten-down discount. Let’s explore why.

Encouraging results

In easyJet’s Q3 2022 results, it reported some strong figures. Although the group posted a loss of £114m, it managed £1.7bn in revenue. For context, for the same period in 2021, group revenue was just £213m, highlighting the impressive recovery. Its losses also shrank by £200m from Q3 2021.

Aside from growing revenues, one of the most encouraging metrics I saw was the decrease in debts. The airline sector is notorious for being saddled with high levels of debt after the pandemic, with players like IAG still sitting on over £8.5bn in debt on its balance sheet. easyJet, however, has a modest £200m debt, down from £600m in Mach 2022. With interest rates on the rise, it’s very encouraging to see the group trimming its borrowings.

Global passenger traffic is also still recovering. The airline reported that it’s now operating at 87% of FY19 capacity, which is very reassuring. It’s expected that in 2022, over 3.5bn passengers will board flights, up from just 1.8bn in 2020. This should help easyJet increase its top-line revenues and drive itself back towards profitability.

Not out of the woods yet

There are still a few risks that easyJet must overcome. For starters, the Russia-Ukraine crisis has sent oil prices skyrocketing. Although easyJet has announced that it has 83% hedged fuel for Q4, rising costs are something it will have to contend with in the future. That’s especially so considering inflation is showing no signs of slowing down.

In addition to this, the cost-of-living crisis (also caused by red-hot inflation) means workers are taking strike action. The problem is that if easyJet doesn’t find extra cash for wages, then strikes will continue and operational efficiency will be greatly hindered. However, if it does agree even a small increase in wages, it will have to shell out millions in extra costs as it employs over 13,000 people.

Why I’m buying

For me, easyJet is a prime example of a good quality stock beaten down by Covid-19 and inflation-related market sentiment. It has decreasing debts, rising revenue, and passenger footfall is set to keep rising in the near future and beyond. All of these factors signify to me the stock could surge in the near future. Yes, rising costs still pose a risk, however, the hedged fuel serves to mitigate this in the short term. For those reasons, I’m looking at adding easyJet shares to my portfolio today.

The post I think easyJet shares are about to surge! Here’s why appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Dylan Hood 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.

Airline stocks were hit hard in 2020 with the onset of the Covid-19 pandemic. As flights ground to a halt, companies found themselves with no customers while still having to shell out millions each month in maintenance costs. The result of this was negative cash flows, growing debts, and crashing stock prices.

However, fast forward to 2022, and much of the lost flying time has been recouped. As people are free to travel again, I would expect airline stocks to be slowly climbing. Yet this hasn’t been the case. easyJet (LSE: EZJ), IAG (LSE: IAG), and Ryanair (NASDAQ: RYAA.Y) are down 40%, 33%, and 32% year to date respectively. Over a one-year span, the same stocks are down 49%, 35%, and 33%. So that being said, is now the time to buy back in?

Ready for take-off?

A big positive for airline stocks is the continuing increase in footfall. In 2019, just under 5bn people boarded flights. In 2020, this number fell all the way down to 1.8bn. However, in 2022, it’s forecast that just under 3.5bn customers will board flights, highlighting the impressive recovery. As this figure increases, it will help boost firms’ top lines, which I expect to be reflected in share prices.

Looking at company-specific results, I also see good news. IAG reported a profit for the three months to June 30 for the first time in two years. Ryanair posted a profit of £170m in its Q1 FY23 results too. Although easyJet recorded a loss of £110m for the same period, its revenues soared to £1.7bn, up from just £213m a year prior. In addition to this, its net debts shrank to just £200m, down from £600m in March 2022. These figures suggest to me the airline industry is in a more comfortable spot.

Not out of the woods yet

But there remain risks. A big threat that could continue to plague airlines is rising fuel costs. The Russia-Ukraine crisis sent the price of oil skyrocketing to over $120 per barrel. Currently sitting around the $100 mark, the price of jet fuel will inevitably have skyrocketed too, increasing operating costs and eating away at margins.

Another risk that airlines must overcome is rising inflation and how this is impacting workers’ wages. We’ve already been seeing union action regarding the erosion of pay in other travel industries. easyJet, Ryanair, and British Airways have all seen strikes this summer, and there’s no guarantee that these won’t continue.

Rising interest rates are also creating a harsh environment for stocks to thrive. I expect this bearish sentiment to be another reason why airline stocks have fallen.

Flying under the radar

Yet I think that airline stocks are back on the up. Shares have fallen due to rising fuel costs, the threat of industrial action, and the wider macroeconomy. However, with flight numbers rising, and industry leaders returning to profitability, I think now could be time to buy back in. As such, I’m looking at buying some UK airline stocks for my portfolio today.

The post Airline stocks: is now the time to buy back in? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?

Dylan Hood 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.

easyJet (LSE: EZJ) shares have been through plenty of turbulence of late. With its operations halted by the Covid-19 pandemic, the business now faces the struggles of a cost-of-living crisis fuelled by racing inflation.

As a result, the easyJet share price has been pegged back by nearly 40% this year. In fact, over the last five years, the stock has plummeted 65%.

So, with the release of its Q3 trading update yesterday, is now the time to buy?

easyJet performance

The tough times the business has been encountering were reflected yesterday in its trading update. For the three months to 30 June, easyJet saw headline losses of £114m.

The main attributor to this was the recent disruptions and cancellations seen across airports of late, as this made up a £133m hit for the business.

The losses seen are significantly better than the £318m for the same period last year. But with passenger numbers jumping more than seven times during this time, to 22m, this shows the effect airport turmoil is having on easyJet.

However, it’s not all bad news. The increase in passengers equated to 87% of FY19 capacity, showing that the sector is slowly but surely recovering back to pre-pandemic levels. easyJet also said its load factors were on the up, peaking at 92% in June.

Looking forward, it also stated that Q4 is currently 71% booked, while sold ticket yield for the period is 13% above FY19.

Is it time to buy?

Despite headwinds, easyJet seems to be edging somewhat closer to its pre-pandemic capabilities. So, is it time to buy some shares?

One area where the business may suffer is rising fuel costs. It has some level of protection as it has hedged part of its supplies up until the end of FY23. However, with the sad war in Ukraine pushing up oil prices, I can still see rising costs having a substantial impact on easyJet’s margins.

It also alluded to how it has “taken action to build the additional resilience needed this summer” as staff shortages have seen operations impacted. How this plays out for the rest of the year is unknown. We’re still seeing delays and cancellations at hubs. And should this drag on later into 2022, this could drive down the easyJet share price.

The cost-of-living crisis may also see demand slow. With inflation set to continue to rise, consumers may be deterred from booking trips away. The crisis has also led to calls from easyJet staff for higher wages.

With all this said, I like the smart moves the business is making for the times ahead. It recently announced an agreement to purchase 56 Airbus A320neo aircraft between FY26 and FY29. And on top of this, it’s also tweaked previous orders to newer, more fuel-efficient aircraft. This is a smart play.

However, I still won’t be buying shares today. The stock has taken a beating this year, but I’m not sure if it’s done yet.

Should its price slip further, I’d be tempted to buy. For now, I’ll be holding off.

The post Is now the time to buy easyJet shares? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Charlie Keough 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.

The last few years have been a turbulent time for the easyJet (LSE: EZJ) share price. After recovering from its 2020 lows, the stock has once again found itself falling. The last 12 months have seen the share price nearly halving. And it’s down 35% year-to-date alone.

Last week saw easyJet’s poor run continue as 10% was shaved off its price. So, can the firm recover from this? Or should I be steering clear of easyJet shares? Let’s find out.

easyJet’s trading update

Last week saw the release of the firm’s summer trading update. Within this, there were multiple positives. For example, CEO Johan Lundgren was keen to point to the fact that “demand for travel has returned,” while passenger volume for April and May was seven times that of last year. Yet despite this, investors reacted negatively to the update as the firm lowered its guidance for this quarter. Originally guided at 90%, easyJet now expects its third-quarter capacity to be 3% lower than its original target. On top of this, the firm has also lowered its Q4 target to 90%, a large fall from the 97% guidance it previously set. The stock fell over 6% last Monday on the back of this news.

A long summer ahead

The main reason for the reduction in guidance is due to the multiple headwinds the business is currently facing.

Firstly, staff shortages across multiple airports have seen easyJet having to cut flights over the summer period. Its two largest bases, Gatwick and Amsterdam, have both introduced daily flight caps. And as a result, it’s expected these cancellations could equate to 10,000 out of 160,000 flights for July, August, and September. With some predicting this could cost the firm up to £200m, this is not good news for the business.

There’s also the serious threat of strikes by Spanish-based easyJet workers. The firm has been working alongside the Spanish union USO since February to resolve pay disputes. However, the union recently stated negotiations are in a “deadlock situation.” The union has called for a series of 24-hour strikes throughout July. Should these go ahead, this would only intensify the issues easyJet is currently facing, and I’d expect to see the share price suffer.

The cost-of-living crisis could also see demand fall off in the months ahead. With inflation continuing to soar, consumers are less likely to book flights as they’re left with less cash to spend. On top of this, rising fuel prices will also squeeze the firm’s margins.

However, I like the moves the firm is making for the long term. It recently announced an order for 56 Airbus A320neo aircraft, while it has also upped prior orders for more fuel-efficient and larger aircraft. From a long-term perspective, this should place easyJet in a strong position going forward.

What I’m doing

Although the moves it’s making now may play out well in the long run, I think it faces too many issues in the months ahead. With the cost of living continuing to spike, I think demand will fall off. And with ongoing delays and cancellations, it could struggle in the months ahead. I won’t be buying easyJet shares today.

The post The easyJet share price fell 10% last week. Here’s what I’m doing! appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Charlie Keough 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.

As the travel industry makes a comeback, I would’ve expected airline stocks to take off. So, it’s odd to see easyJet (LSE: EZJ) shares doing so poorly, as it’s down 30% this year. So, here’s why the easyJet share price is crashing.

A dissipating tailwind

On Monday, easyJet released its summer trading update. The good news was that, “Demand for travel has returned“, according to CEO Johan Lundgren. Passenger occupancy for the months of April and May was seven times higher than last year, with expectations for capacity to reach 87% of pre-pandemic levels this quarter. Unfortunately, that’s where the good news ends.

Despite the upbeat tone, investors punished easyJet stock as management lowered its initial guidance. Although 87% capacity of 2019 levels is still high, this is lower than the 90% initially guided. The firm’s outlook for Q4 also saw a decline to 90% of 2019 levels. Additionally, higher operating costs soured investor sentiment even further.

Not so easy

Pent up demand and the lack of airport staff have led to chaos at British airports. Gatwick Airport, easyJet’s base, has announced daily flight caps as a result. This is part of the reason why the FTSE 250 firm has had to lower its guidance, as growth in passenger numbers hit a ceiling.

Gatwick Airport normally operates 900 flights a day in August. But it’s capped its daily operations to 825 flights a day in July, and 850 flights a day in August for this year due to staff shortages. This has led to delays and flight cancellations.

Many analysts are predicting that these delays and cancellations could cost easyJet up to £200m. Nonetheless, management believes that its high frequency network allows for most passengers to be rebooked onto flights within the same day, thus preventing a big loss in revenue.

Turbulence or engine failure?

Whether this chaos will have a devastating impact on the company’s top line will be revealed in its next trading update. What I do know, however, is that the board is bullish about the airline’s long-term growth. It recently announced a mammoth order for 56 Airbus A320neo aircraft, and converted its initial order of 18 A320neos to the bigger A321neos. These aircraft are more fuel efficient and provide bigger capacity. As such, I’m expecting the Gatwick-based firm to reduce its operating expenses in the long term, and reverse its declining profit margins.

That being said, I’m worried about the easyJet share price in the short-term. High fuel costs and rising interest rates present heavy economic headwinds, with analysts bracing for a potential recession. This would undoubtedly impact sales figures.

Fortunately for the firm, it’s got sufficient cash (£3.5bn) to covers its debt (£3.1bn). However, it goes without saying that its debt-to-equity ratio is still disproportionately high, at 126.4%. On that account, another couple of bad quarters may hinder the budget airline’s return towards profitability.

Nevertheless, easyJet’s business model isn’t my cup of tea. Its history of low-quality earnings paired with high levels of uncertainty makes it a risky investment for me, hence why I won’t be investing in easyJet shares. Instead, I’ll be investing in other growth stocks that have better profit margins.

The post Here’s why the easyJet share price is crashing appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

John Choong has no position in any of the shares mentioned at the time of writing. 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.

That being said, more and more countries are lifting their covid-19 travel restrictions as the world returns to normality. This should help easyJet shares rise throughout 2022. Is now the right time for me to buy some cheap shares? Or should I pass up on the UK airline giant? Let’s take a look.  

Trading updates

The firm’s latest results showed that for the three months to 31 December 2021, revenues rose to £805m, up from just £165m for the same period in 2020. This was to be expected, but it does highlight the large-scale recovery the firm has seen since the worst parts of the pandemic.

easyJet is appealing to customers who are looking for cheap budget holidays. And the airline has announced it will be releasing a number of such holidays in an effort to drive up occupancy of its planes. This should help drive up revenues in the near future and should prove popular as we approach the summer holiday season.

A final positive for easyJet shares is the global outlook for passenger traffic. As my fellow Fool Charlie Keough mentioned, global passenger volume is expected to reach 3.4bn in 2022. This is almost double the passenger numbers seen in 2020, which is great news for easyJet. With it offering cheap deals, it could set itself aside from the competition, capitalising on these large numbers.

Headwinds for easyJet shares

While there are certainly positives for the firm, there are also some big risks ahead of it. Firstly, the dreadful events linked to the Russia-Ukraine war have led to disruption and international travel uncertainty. In addition to this, the price of oil has skyrocketed to well over $100 a barrel. This will filter down into easyJet’s fuel costs, reducing margins and placing pressure on revenues. I struggle to see how the shares will climb in this uncertain landscape.

In order to mitigate this risk, easyJet has announced that it has 60% hedged fuel for the current financial year, ending 30 September 2022. While this gives me some confidence, rising fuel costs are still a big worry in my opinion.

What I’m doing now

While the current share price drop does offer me a chance to grab some cheap shares, I think the risks outweigh the positives for the firm. It has experienced encouraging results and is set to benefit from increased footfall. However, I can’t help but worry about rising fuel costs and international travel issues. In my eyes, easyJet shares will struggle to overcome these risks in the near future. As such, I won’t be adding the shares to my portfolio today.

The post easyJet shares fell over 7% yesterday: should I buy now? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Dylan Hood 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.

However, recent times have provided the business with optimism. More countries are ditching their restrictions in return for normal procedures. As such, should I be buying easyJet stock at the current price? Let’s take a look.

Encouraging results

Well, the outlook for easyJet certainly seems to be improving. The firm’s latest results for the three months to 31 December 2021 showed that revenue for the quarter stood at £805m. When compared to the £165m recorded for the same period in 2020, it is clear easyJet has taken large strides since the worst of the pandemic. Further, while the company still reported a loss, it was nearly half (£213m) of the £423m seen last year. And if this loss continues to be cut, I’d imagine this will lead to a rise in the easyJet share price.

We can also expect to see higher passenger volume in 2022. And this will provide easyJet with hope for the months ahead. As I recently mentioned in an article where I stated how I would buy shares in easyJet competitor IAG, passenger volume is expected to reach 3.4bn in 2022. This is nearly twice as high as 2020. This rise in volume is due to the reopening of borders globally, as more countries have dropped restrictions to allow smoother travel.

As I also mentioned, easyJet may have an edge over competitors with its cheap flight deals. As eager passengers look to potentially fly out for budget holidays, the firm is in a prime position to capitalise on this. I think this part of the business could excel in the next few months. And the share price could rise as a result.

easyJet share price headwinds

There are a few risks I must account for, however.

Firstly, while we seem to be coming to the end of the pandemic, an emergence of a new strain could potentially place us straight back in it. Any sign of this would have negative connotations for the easyJet share price.

Secondly, the price of jet fuel may increase because of the Ukraine conflict. The fear of decreasing supply could have a negative impact on the company’s operation. Costs will likely rise in the coming months.

What I’m doing

Despite the risks associated with easyJet, I think the outlook is bright for the firm. While its latest results show the business is heading in the right direction, what we can expect to see in 2022 will only bolster these figures. I also think that as consumers look to jet off for the first time post-pandemic, cheap options such as easyJet will be in high demand (this certainly applies to me). As such, I would be willing to buy easyJet stock today.

The post The easyJet share price is down 38% in a year. Here’s what I’m doing now! appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Charlie Keough 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.

Its fortunes changed when news emerged late last week that Russia had invaded Ukraine. The market’s response led to a 6.3% drop in the price on Thursday.

However, with the stock currently changing hands at around 148p — a slither of the 400p price we saw pre-pandemic — is now a good time for me to be adding IAG shares to my portfolio? Let’s take a look.

The reopening of borders

A major boost for IAG will be the recent reopening of borders around the world. As more and more countries have eased the restrictions placed on international passengers, this should allow the firm to see an increase in passengers over the coming months. Further, some countries have lifted restrictions altogether, for instance, Sweden and Spain. And the benefits they reap from doing so may entice other countries to follow suit. According to the International Air Transport Association, around 3.4bn people will fly in 2022 – nearly double that of 2020. As such, this makes me believe buying IAG shares at the current price could be a steal.

Further, and as my colleague Andrew Woods stated, IAG may benefit more than competitors when it comes to the increased travel we should begin to see. This is because, unlike EasyJet and Wizz Air that focus on short-haul flights, IAG also operates transatlantic routes – estimated to be worth $1bn annually to the firm.

IAG also released its full-year results last week. And the numbers were encouraging. While revenues were up 8.3%, its post-tax loss had declined by 57.7%. When considering buying the shares, these numbers do sway me.

The risks

There are risks, however. The most obvious threat to IAG remains the pandemic. While it seems that the worst of it is over, there’s still potential for it to cause disruption in the future. Any sign of this would most definitely mean a drop in the price of IAG shares. With this said, Boris Johnson recently announced that the legal requirement to self-isolate due to a positive case has ended, showing further how the UK is taking strides to move away from the pandemic. This will provide a boost for the business.

My verdict

So, while a threat linked to the pandemic remains, I’m optimistic about what the future holds for IAG. The firm will see big benefits from the increase in passenger volume this year, and trading for well below half of the pre-pandemic levels I think IAG could be a solid buy. Its full-year results also provide me with confidence. As such, I would be willing to add IAG shares to my portfolio today.

The post Should I be adding IAG shares to my portfolio? appeared first on The Twelfth Magpie.

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Charlie Keough 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.

While IAG shares have fallen almost 12% in a year and 20% in the past 30 days, they jumped 8% last Monday. This was largely due to the Omicron virus concerns abating. These up and down price moves made me wonder whether now might be a good time to add IAG shares to my portfolio.

IAG valuation

First, looking at valuations, IAG shares actually look quite cheap to me right now. The firm’s pre-pandemic share price was well over 400p. Currently sitting at 142p, it’s trading with a price-to-sales (P/S) ratio of 1.77. This is lower than competitors Wizz Air and Ryanair, which are at 4 and 6.51 P/S ratios, respectively. This signals to me that the IAG share price may be relatively undervalued compared to its rivals.

In addition to this, CEO Luis Gallego has said he believes “a significant recovery is under way and our teams are working hard to capture every opportunity”. If transatlantic flight routes continue to improve, the firm expects to return to profitability by summer 2022. If the firm can deliver some profitable results, I would expect IAG shares to rise as a consequence.

The bear case for IAG shares

One thing that worries me about IAG is the continuing impact that Covid is having on the balance sheet. Forced to take on almost £4bn in debts, this could weigh the firm down moving forward. What’s more, IAG released disappointing 2021 Q3 results in early November. Passenger revenue fell 35% compared to the same period in 2020. In addition to this, borrowings increased 24%, adding to its heavy debt pile.

While the Omicron variant may be less harmful than previously expected, it’s still causing major delays to the reopening of global travel routes. For example, Austria announced a full lockdown on 19 November. It seems the global reopening of travel routes is going to be an uphill battle for the travel industry, and IAG shares will have to bear the brunt of that.

The Verdict

Don’t get me wrong, IAG shares do look cheap. However, I think this is for a reason. The firm’s poor results, coupled with looming Covid fears are a big red flag for me. I do think the beaten-down travel industry could be a good investment opportunity, but for me it’s too risky to touch at the moment. I would wait to see how IAG performs over the next six months before considering adding shares to my portfolio.

The post Should I buy IAG shares today? appeared first on The Twelfth Magpie.

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Dylan Hood 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.