easyJet (LSE: EZJ) shares are a popular investment. It seems investors are drawn by the fact that they’re still well below their pre-Covid levels.
Now I don’t plan to buy easyJet shares for my own portfolio and I’ll explain why. However, there is one travel stock I’ve been buying lately.
easyJet shares aren’t for me
There are certainly things to like about easyJet from an investment perspective today.
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For starters, the company is seeing strong demand for summer bookings. In its recent H1 results for the six months to 31 March, easyJet said for Q4 (July-September) it expects capacity to be near pre-pandemic levels. This is very encouraging.
Secondly, the stock’s valuation is quite low. For the current financial year, analysts expect easyJet to generate earnings per share of 41.9p. That puts the stock on a forward-looking price-to-earnings (P/E) ratio of around 11.3 – below the market average.
However, what puts me off investing in easyJet is the fact that history shows sooner or later something will go wrong for the airlines.
It could be a consumer slowdown (I think this is a real risk this winter). Or it could be a number of other issues. But there’s always something that throws them off course. As a result, they generally don’t make good long-term investments.
Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results. It’s been a death trap for investors.
Warren Buffett on airline stocks
Of course, airline stocks can be good short-term ‘trades’ at times. And maybe this is one of those times.
However, I’m a long-term investor and I’m looking for stocks I can hold for five to 10 years (and hopefully generate huge gains). So easyJet isn’t for me.
A travel stock with bags of potential
I do want some exposure to the travel industry however. So what I’ve been doing recently is investing in US-listed Airbnb (NASDAQ: ABNB).
To my mind, Airbnb is a high quality company with bags of potential. One reason I’m bullish here is that the company is the dominant player in the holiday rental space. It’s so dominant its name has become a verb.
Another is that it’s a very scalable business. With operations in over 200 countries worldwide, it’s far more scalable than a budget airline like easyJet.
I also like the fact the company is now quite profitable. Last financial year, gross profit margin was around 70%, versus 42% for easyJet.
Finally, it’s growing at a rapid rate. Over the last five years, Airbnb’s revenue increased by around 230%. For easyJet, the figure is 14%. Now obviously, the pandemic has had a big impact on these figures in recent years. Yet it’s clear Airbnb is growing faster over the long term than airlines.
On the downside, the stock is a little expensive. Currently, Airbnb shares sport a P/E ratio of about 31. This adds risk.
As a long-term investor however, I’m comfortable with this valuation. In the long run, I expect this stock to beat the market by a wide margin.
