easyJet (LSE:EZJ) shares were decimated during the pandemic. But since then, the short-haul travel markets made a solid comeback. And in the group’s latest third-quarter trading update, pre-tax profits jumped another 16% in the three months leading to June.
A common piece of investing advice is to always buy low. And with Covid-19 sending the easyJet share price to its lowest point in over a decade, it begs a question. How much money could investors have made?
Crunching the numbers
Following the outbreak of Covid, stocks across the board collapsed in quick succession, triggering a stock market crash. And easyJet was no exception. At the start of February 2020, shares were trading at around 1,200p. By the middle of March, they’d crashed to under 350p – a 70% decline.
However, since then, the situation’s obviously improved. Borders are no longer closed, passenger numbers have recovered to pre-pandemic levels, and demand appears to be rising. So how have easyJet shares fared?
Investors who were able to jump in at the stock low point with £10,000 now have £12,342 – a 23.4% return. That certainly isn’t terrible, but considering the FTSE 100 delivered total gains close to 50% over the same period, easyJet’s definitely lagging the wider market.
Management did pay out a dividend for the first time since 2020 earlier this year. But that’s still nowhere near enough to close the performance gap. So what’s going on?
Inspecting the damage
Global lockdowns created a lot of pent-up demand to travel. That’s hardly a surprise, given families were confined to their homes for months. And once the travel markets fully reopened in 2022, a subsequent surge in travel activity followed.
This momentum’s how easyJet’s financials got back on their feet, and repairs to Covid-induced damage began. But the recovery tailwinds can only blow for so long. And based on the group’s latest round of results, it seems the travel market’s beginning to soften.
To add further uncertainty into the mix, CEO Johan Lundgren’s announced he’ll be stepping down next year. In the meantime, several of its rivals have begun executing takeovers, consolidating competition within Europe. With bigger wallets backing rival short-haul airlines like Lufthansa, growth’s bound to get more challenging.
As such, despite the improved market landscape, it seems investors remain unconvinced that easyJet can deliver.
A buying opportunity?
Despite the headwinds, easyJet’s producing some encouraging results. As of July, its bookings for its fourth quarter ending in September have reached 69% of capacity. That’s slightly higher than a year ago despite overall capacity increasing by 7%. That’s particularly encouraging, given it’s when the business sees peak travel activity.
Meanwhile, bookings for the last three months of 2024 have also increased compared to a year ago, with 20% of total capacity filled.
However, the big question is, what price were these tickets sold? At a forward price-to-earnings ratio of just 5.9, easyJet shares look like a dirt cheap bargain. But if the yields on ticket sales falter, pessimism from investors may be warranted. That’s why I’m keeping this enterprise on my watchlist for now.
This post was originally published on Motley Fool
