In another article today, I talk about why this is might just be a great time for me to invest £10,000 in FTSE 100 shares. easyJet (LSE: EZJ) is not a part of the index, but going by recent developments it might just soon be. Where it closes tomorrow will tell. If anyone needed a bit of confidence in the low-cost airline, this might just be it. And as an investor in the stock already, I am already excited at the prospect. As you can well imagine, the now FTSE 250 stock is dragging my investment portfolio down right now after dropping 40% in the past year.
Strong trading update
But as anyone who owns cyclical stocks in these uncertain times knows, as long-term investors we really need to cut through the noise and base our decisions on information we can hold on to. Like easyJet’s latest update. In late January, it had released some details about its performance for the quarter ending December 2021, which appeared positive. Its loss had almost halved from the year before. And while the surfacing of Omicron had dented its bookings, there was a balancing factor at play as well. The UK government had reduced all travel testing requirements, which had bumped bookings up. It also expects this summer to be a good one, with a return of its capacity to pre-pandemic levels.
The inflation drag for the easyJet share price
This in turn should show up in its financials as well, which of course have suffered in the recent past. Since the update, things have gotten only better with regards to the pandemic. But the Russia-Ukraine war has probably impacted easyJet’s share price, like it has with many other cyclical stocks. In particular, the easyJet share price could be affected by rising inflation. Fuel costs are an important cost for airlines and fuel prices seem to be on the up. Crude oil touched $100 per barrel last week and could remain elevated in the foreseeable future as well. In its update, easyJet says that it is 60% hedged for fuel for the current financial year, which ends on 30 September 2020. This is of course partly a relief, but it could still be impacted by higher fuel costs if oil prices continue to run up.
What I’d do
On balance, I expect that the easyJet share price could rise from current levels, which are abysmally low compared to its prospects. Of course there is no denying that there are drags on the stock. Overall stock market uncertainty as the Russia-Ukraine war continues and rising inflation are two of them. But there is also the possibility that the geopolitical tension could be resolved quickly. Economic growth is looking quite strong for now. I do not think the stock is out of the woods yet, but if I had not bought it already, I would buy a small amount for my investment portfolio with the knowledge that it is probably a bit more risky than many other stocks. But it also has much potential.
