EasyJet (LSE: EZJ) is arguably one of the worst impacted stocks from the pandemic. But I have been bullish on it for a long time.
And I continue to be so, despite its trading update released earlier today. As expected, the company reported weak numbers and even refrained from providing any guidance, citing short-term uncertainty.
Here are three reasons I still like easyJet today:
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#1. Improving environment
From vaccinations to the economy, things are looking up. Continental Europe has so far been a laggard as far as vaccination progress goes, but it is expected to pick up the pace in the near future. The UK has made fast progress in vaccinations already.
As the pandemic comes under control and the lockdowns end, the economy will come back on track too. Forecasts for this year and the next are positive. And if the long queues outside non-essential retail stores as they opened up on Monday are anything to go by, we should expect a pick up in demand. And that includes travel demand.
#2. Bargain buy
Air-travel demand is widely expected to come back to 2019 levels only in a couple of years or so. But signs of growth will be back soon. In anticipation of this, share prices of peers like Wizz Air touched all-time highs last month. The easyJet share price has picked up in the last six months too, but it is still far from its all-time highs.
As a result, if I compare the two in terms of price-to-sales (P/S), easyJet clearly looks like a better buy right now. In fact, even outside its aviation peers, easyJet is something of a bargain buy. The stock market rally that started in November last year has pushed up share prices across the board. Many stocks have long surpassed their pre-market crash levels. Not easyJet, however.
#3. Quick potential bounce back
But I reckon that once travel resumes to a significant degree, easyJet’s share price could rally. It is a low-cost airline, which I think is more likely to see demand come back quickly than full-service airlines. The company saw a sharp pick up in bookings as soon as the phased end to the lockdown in the UK was announced.
I reckon that the cost advantage of no-frills airlines like Ryanair and Wizz Air has added to their appeal. And taken the sheen off British Airways owner International Consolidated Airlines Group. I think easyJet is more likely go the way of its low-cost peers too.
What can go wrong
Of course if there are any more delays in ending the lockdown, it could be a negative for the easyJet share price. If post-lockdown, we find ourselves in a recession rather than the long-promised growth come back, that will impact travel demand too.
But to assess what will happen next, we have to work with the most probable outcomes. And for now, it appears that things are on the mend. Which to me, means that the easyJet share price can rise more.
