The easyJet (LSE: EZJ) share price is stuck on the runway while British Airways-owner IAG takes off like a rocket.
Over the last year, IAG has soared 150%, while easyJet shares fell 6.5%. That’s a stark contrast. So why is easyJet so underpowered? More importantly, can it make up lost ground?
Judging by its low price-to-earnings (P/E) ratio of just 8.6, there’s a potential bargain to consider here. That’s well below the average FTSE 100 P/E of around 15 times.
Like every airline, it was hammered by the pandemic. IAG is over that. EasyJet isn’t. Why?
Can this FTSE 100 stock fight back?
It’s missed out on a key revenue driver that’s been boosting its rival – the transatlantic trade. EasyJet, being a short-haul European airline, isn’t benefitting in the same way.
The UK and European economies are both struggling, as the cost-of-living crisis drags on. easyJet’s customer base could feel the pinch. Budget airlines rely on strong demand, and any economic downturn could make people think twice about discretionary travel. Now they have Donald Trump’s trade tariffs to contend with too.
That’s a worry, with the Bank of England forecasting consumer price inflation will head towards 3.7% later in the summer.
easyJet’s Q1 results published on 22 January showed a £61m headline loss before tax for the three months to 31 December. However, that’s roughly halved from a £126m loss a year earlier. Lower fuel prices helped. Group revenues rose 13% to £2.04bn.
Bookings for summer 2025 look strong, suggesting demand remains resilient. Especially in its fast-growing holidays segment. easyJet says it’s still on track to hit its medium-term target to deliver more than £1bn of profit before tax.
A little income, a lot of potential growth
Last week, the shares climbed 3.5%. That’s a welcome move in the right direction, but IAG still beat it, growing 8%.
I expect easyJet shares to fly at some point. Investors who consider getting in before they take off should bag the best returns. But they may have to withstand some short-term volatility. Operating margins are forecast to drop from 10.3% to 7.1%. Volatile fuel prices remain a concern.
There’s a dividend, but it’s modest. The trailing yield is 2.3%. That’s forecast to hit 2.7% this year. Plus it’s comfortably covered 4.9 times by earnings, which suggests sustainability.
There’s plenty of optimism out there. The 20 analysts offering one-year share price forecasts have produced a median target of just over 705p. If correct, that’s an increase of around 33% from here. I fancy some of that.
Of the 21 analysts tracking the stock, 12 call it a Strong Buy, two say Buy and seven say Hold. None suggest selling.
I share their optimism. But I still think easyJet shares could be a bumpy ride. Investors considering the stock should take a minimum five-year view.
This post was originally published on Motley Fool
