easyJet (LSE: EZJ) is up a bit on Wednesday as I write. But around 620p, the easyJet share price is still way down on its 2021 high of 1,095p. It’s barely even above its 52-week low of 612p. Should I snap it up as a screaming bargain to add to my Stocks and Shares ISA now? I’m going to list what I see as the pros and the cons. And as it’s a sunny day and I’m in a cheery mood, I’ll start with the good stuff.
The UK has removed all remaining destinations from its travel red list. And we can now travel anywhere without hotel quarantine on return. In fact, easyJet’s popular short-haul market has been clear for weeks. Although Heathrow, with its long-haul destinations, is still only at 45% capacity, short-haul routes should hopefully be among the first returning to normal.
By 30 September, easyJet was back to 58% of 2019 capacity, which I think is impressive. The airline expects a headline loss for the year of between £1,135m and £1,175m, and that’s better than the previous consensus. Bookings are heading into the 2021-22 travel year at double last year’s level.
Despite the full-year loss, easyJet achieved positive operating cash flow of approximately £40m in Q4. That speaks well of the company’s liquidity.
easyJet share price too low?
Year-end debt is down to around £0.9bn, from £2bn at Q3. That’s due to September’s £1.2bn rights issue, which created a fair bit of dilution and sent the easyJet share price downwards. But I think the fall was overdone, and easyJet shares look oversold to me. At least I don’t expect any further funding to be needed now.
And what’s the gloomy side of the picture? Firstly, easyJet is an airline. That means it competes solely on price and can offer little in the way of differentiation. If I want to fly anywhere short-haul, I simply go for the cheapest I can find. That’s even if it means flying Ryanair, which consistently performs badly in customer satisfaction surveys.
Airlines are at the mercy of external costs over which they have no control, with fuel perhaps the most painful. And oil has been rising, now up around $85 per barrel. Because of these reasons, I’ve never invested in airline shares.
Red list threat
Remember that red list that’s now empty? Well, the government hasn’t scrapped it. It can re-add countries should the need arise. I’ll still be reluctant to fly anywhere while there’s a possibility of a huge surcharge should the government mandate quarantine after I’ve booked (or worse, while I’m away).
Covid-19 cases are rising again in the UK, with England’s deputy chief medical officer Prof Jonathan Van-Tam warning that the winter months are “potentially going to be problematic“. So while the UK might be keen to welcome arrivals without quarantine, maybe other countries will become less welcoming of Britons turning up at their airports.
So will I buy now? Did I mention that I don’t like the airline business and have never invested in it? Well, I’m still staying away. But I can’t help thinking I could miss a 12-month growth spurt for the easyJet share price now.
Alan Oscroft 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.
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