It’s been an ‘interesting’ first six months of 2023 for the UK market. While some stock prices have tumbled or stagnated in the wake of stubborn inflation, others have soared. Budget airline easyJet (LSE: EZJ) shares are a great example of the latter.
On the ascent
As is often the case in investing, a company that’s hated in one year can be adored in the next.
While the descent of easyJet shares was a little more protracted, the performance in 2023 has been one for holders to savour.
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As I type, the stock has climbed 46% so far.
Without taking into account transaction costs, this means I’d be sitting on a profit of £460 if I’d initially invested £1,000 in the New Year.
Index-beater!
Sure, such gains aren’t unheard of in the stock market. Volatile small-cap stocks can deliver similar capital returns over a similar time period.
However, this sort of performance does begin to raise eyebrows as the companies get larger in size. As the great growth investor Jim Slater once stated: “Elephants don’t gallop“.
Of course, there are exceptions to every rule. And what makes this elephant’s jump in value even more impressive is that it’s massively outperformed the FTSE 250 of which it’s a member.
The index is currently down for the year by almost 4%.
Another victory for brave (or lucky) stockpickers.
What’s going on?
Post-pandemic, it would seem that many of us have not-unreasonably rediscovered our love for travel. As one would imagine, many investors haven’t let this opportunity go to waste.
To be clear, easyJet isn’t the only airline to be embraced again. IAG shares, for example, are up 25% so far this year. Fellow budget carrier Wizz Air is up just over 40%.
Still, the fact that the first-half loss reported in May was in line with guidance suggests the company’s financial position is stabilising. Easing fuel prices have no doubt helped.
Will easyJet shares continue to soar?
I can certainly see why the stock could keep increasing in value. After all, the Luton-based business has already expressed its confidence about the all-important summer season due to strong bookings and “operational resilience“.
Investors also seem to be encouraged by plans to build on the success of its easyJet holidays offer by entering the European package holiday market this summer. According to the company, this can be achieved “with very low risk“.
Should all go to plan, this will be another string to easyJet’s bow.
On the other hand…
Notwithstanding this, the rise in the share price is still quite surprising considering that UK consumers are being forced to watch the pennies more than ever. In times of economic challenges, luxuries like travel and holidays can be postponed.
Right now, the market seems to think that demand will stay robust. However, I’m wary that it will take a while to see the true fallout from the decision to push the base rate to 5%.
Throw in ‘known unknowns’ like air traffic controller strikes and weather-related anomalies and I’d say easyJet shares still carry (considerable) risk.
And despite recent rises, they’re still down almost two-thirds in value from five years ago.
Congratulations to (new) holders. However, I won’t be buying a slice of this or any other airline when markets reopen on Monday.
