Is now a good time to buy easyJet shares?

After gaining momentum, easyJet shares seem to be struggling. Dylan Hood assesses if the stock is a current buying opportunity for him.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s no surprise that easyJet (LSE: ESY) shares were hit hard by the pandemic. March 2020 saw the share price fall almost 70% lower than the previous month. This movement fell in line with a broader hit to the travel sector as worldwide travel bans were enforced. Although easyJet shares have fallen in recent months, they are actually up 6% year-to-date and nearly 30% over 12 months. So, is it a good time to add easyJet to my portfolio?

Impressive recovery

easyJet’s Q3 results offered investors some encouraging numbers. Costs fell to £34m per week, which actually outperformed the Q1 guidance of £40m. Although these costs may seem steep, the fact that the company is performing better than expectations is a great signal to investors of effective management. In addition to this, the firm has signalled Q4 capacity will be near 60% of its 2019 levels, as opposed to 17% in Q3, meaning revenues will start to increase again. Both of these metrics seem to point easyJet shares in the right direction.

Another notable point that could help easyJet and its share price move forward is the costs streamlining the pandemic has forced on the firm. A bold (albeit sad) move of cutting staff by 30% was initially met with industry criticism. However, it is a large part of the reason the firm was able to shrink its losses to £318m for Q3. Moving out of the pandemic, I expect easyJet to continue this effective cost management, which could drive future profit margins higher. This would be great news for easyJet shares.

Risks lie ahead

There are still some serious risks to easyJet shares. The constant uncertainty of the pandemic continues to haunt the travel industry and as my fellow Fool Charlie Keough highlighted, many analysts don’t expect the aviation industry to fully recover until 2024. Predictions like this are a big red flag for stocks like easyJet.

In addition to this, the shares have fallen almost 20% in the past six months, slowing down the momentum the stock gained in the tail end of 2020. It is a similar case with peers TUI, and IAG, which have seen their share prices tumble by 29% and 22% in the past six months, respectively. This negative market sentiment doesn’t place easyJet shares in a strong position, in my eyes.

A good time to buy easyJet shares?

I think the shares still have some challenges to face. Although cost management and flight capacity numbers are encouraging, there is still a long way to go before the firm is back to its pre-pandemic self. Broader market sentiment also seems to be negative, which isn’t great news for the firm. I sold my easyJet shares in March and am waiting until I have a clearer picture of the travel industry’s future before possibly adding them back in my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Closeup of "interest rates" text in a newspaper
Investing Articles

Here’s why 2025 could give investors a second chance at a once-in-a-decade passive income opportunity

Could inflation hold up interest rates in 2025 and give income investors a second opportunity to buy Unilever shares with…

Read more »

Investing Articles

As analysts cut price targets for Lloyds shares, should I be greedy when others are fearful?

As Citigroup and Goldman Sachs cut their price targets for Lloyds shares, Stephen Wright thinks the bank’s biggest long-term advantage…

Read more »

Investing Articles

Is passive income possible from just £5 a day? Here’s one way to try

We don't need to be rich to invest for passive income. Using the miracle of compounding, we can aim to…

Read more »

Middle-aged black male working at home desk
Investing Articles

If an investor put £20k into the FTSE All-Share a decade ago, here’s what they’d have today!

On average, the FTSE All-Share has delivered a mid-single-digit annual return since 2014. What does the future hold for this…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

One FTSE 100 stock I plan to buy hand over fist in 2025

With strong buy ratings and impressive growth, this FTSE 100 could soar in 2025. Here’s why Mark Hartley plans to…

Read more »

Investing For Beginners

If a savvy investor puts £700 a month into an ISA, here’s what they could have by 2030

With regular ISA contributions and a sound investment strategy, one can potentially build up a lot of money over the…

Read more »

artificial intelligence investing algorithms
Investing Articles

2 top FTSE investment trusts to consider for the artificial intelligence (AI) revolution

Thinking about getting more portfolio exposure to AI in 2025? Here's a pair of high-quality FTSE investment trusts to consider.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Do I need to know how Palantir’s tech works to consider buying the shares?

Warren Buffett doesn’t know how an iPhone works. So why should investors need to understand how the AI behind Palantir…

Read more »