Should I buy easyJet shares now?

easyJet shares are currently trading for just over 300p after starting the year near 600p. Edward Sheldon discusses whether he’d buy them now.

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easyJet (LSE: EZJ) shares have experienced an extraordinary decline this year. Back in February, they were trading above 700p. Today however, they can be snapped up for around 300p.

Is it worth buying a few shares for my portfolio at the current price? Or are there better stocks to buy today? Let’s discuss.

easyJet shares: is a recovery on the horizon?

easyJet posted a trading update for the year ended 30 September last week, and I thought it was relatively encouraging.

For a start, the company said that demand remains strong. “Our summer 23 season went on sale last week and we were filling the equivalent of more than four A320 aircraft a minute in the opening hours demonstrating the continued demand,” said CEO Johan Lundgren.

This is good to know given that many people are struggling with the cost-of-living crisis. It’s worth pointing out however, that capacity is still well below pre-pandemic levels. For the current quarter, easyJet expects to hit 83% of FY2019 capacity.

Secondly, the group said operational issues are improving. Since the start of July, operations have normalised, with Q4 on-the-day cancellations below 2019 levels.

Third, it also said its balance sheet is robust, with around £3.6bn of cash and money market deposits, and net debt of £0.7bn, at 30 September.

Finally, it said it is well hedged in terms of fuel prices, with roughly 69% hedged for H1 FY2023 at around $802 per metric tonne.

As for profitability, for the 12 months to the end of September, easyJet forecasts it would post a pre-tax loss of between £170m and £190m. This includes a £64m FX loss from balance sheet revaluations (the stronger US dollar has had a negative impact) and disruption costs of around £75m. This loss estimate was roughly in line with what analysts had been expecting (£180m). So there were no nasty surprises here.

Overall, there were a number of positives to take away from this update, in my view. However, the market seemed quite disinterested – the easyJet share price hardly moved after the update.

Should I buy easyJet shares today?

If I was a ‘turnaround’ type of investor, I might consider having a nibble here. The share price has fallen a long way, and if easyJet can deliver an improved performance next year, there’s a chance that the stock could experience some form of rebound.

However, this isn’t my investment style. I’m a ‘quality’ investor with a long-term focus. In other words, I buy shares in high-quality companies that are consistently profitable (and have significant long-term growth potential), and hold them for the long run.

Airline shares aren’t a good fit for my portfolio because the industry tends to experience a crisis on a regular basis (as we’ve seen with easyJet in recent years). Airlines can be great ‘trades’ at times but, typically, they don’t make good long-term investments as something always eventually goes wrong.

So I’m going to pass on easyJet shares. All things considered, I think there are better stocks to buy for my portfolio today.

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.

Edward Sheldon 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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