Can easyJet rocket like the IAG share price?

Harvey Jones has been astonished by the stellar performance of the IAG share price over the past year. Now he wonders whether rival easyJet can play catch up.

| More on:

Image source: Getty Images

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.

The IAG (LSE: IAG) share price has soared over the last year, rocketing 110%. In contrast to this, easyJet (LSE: EZJ) shares have slumped 6%. The performance gap continues. Over the last month, IAG is up another 7%, while easyJet is down 12%.

Created with Highcharts 11.4.3International Consolidated Airlines Group + easyJet Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

This divergence raises an intriguing question. Can IAG maintain its momentum, or is easyJet now the better recovery play?

Both airlines are benefitting from a post-pandemic travel resurgence. However, IAG has raced ahead, which I put down to its premium offering, robust demand for long-haul flights and stronger transatlantic business. It also has greater pricing power due to its flagship brand, British Airways, and its ownership of Iberia and Aer Lingus.

Should you invest £1,000 in easyJet right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if easyJet made the list?

See the 6 stocks

One FTSE 100 airline is flying, the other is grounded

Meanwhile, easyJet has faced cost pressures, including fuel prices, wages and air traffic control issues. As a budget carrier, it struggles to pass higher costs to customers without denting demand.

Another key difference is financial resilience. IAG has higher operating margins of 13%, nearly double easyJet’s 7%, indicating superior efficiency. Yet despite their markedly different performance, both companies look relatively cheap.

IAG’s price-to-earnings (P/E) ratio is just 7.6, roughly half the FTSE average. EasyJet also looks cheap, trading on a multiple of eight times earnings. However, IAG’s stronger margins and momentum make its lower P/E look like more of an opportunity.

There’s one big issue though. IAG still has net debt of around €6bn. It’s steadily whittling that down but it remains a burden. By contrast, easyJet has a net cash position of £181m, giving it more of a safety net and greater flexibility to invest in its offering.

Neither stock is a strong income play. easyJet’s trailing dividend yield of 2.4% beats IAG’s 0.77%. However, IAG is restoring dividends rapidly, with a forecast yield of 2% this year, narrowing the gap with easyJet’s predicted 2.9%.

Both value stocks have their charms 

Despite recent underperformance, easyJet’s shares have plenty of scope to recover. The airline is expanding its holiday business, providing more stable revenue streams. It also has a strong brand and could benefit if European consumer confidence lifts.

If easyJet can improve its cost control and benefit from ongoing travel demand, its shares could take off. The budget airline sector remains highly competitive, but easyJet’s balance sheet strength gives it some breathing space.

Meanwhile, IAG continues to benefit from high-margin business travel and transatlantic demand, positioning it well for future growth. With the airline industry in recovery mode, both stocks could fly.

I’m a little nervous about buying easyJet. I almost took the plunge last summer but given subsequent share price volatility, I’m glad I resisted. Momentum is a powerful force, and right now, IAG has it. While I wouldn’t expect the shares to double in value this year too, there may be more to come. Of the two, I think IAG appears the stronger pick for investors to consider today.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in easyJet right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if easyJet made the list?

See the 6 stocks

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.

Harvey Jones 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

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

FTSE shares: the perfect ‘get rich slow’ idea?

As a long-term investor, Christopher Ruane reckons the FTSE 100 could offer him the foundations to create stock market wealth.…

Read more »

Investing Articles

Here’s how an investor in their 30s could aim to turn a £10k ISA into £132,676 by retirement

Christopher Ruane explains how someone with a 30-year investing timeframe could aim to increase an ISA stuffed with blue-chip shares…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have made a lot of investors very rich as they push to new heights. Dr James Fox explores…

Read more »

Investing Articles

£20k split between these 2 FTSE value stocks 1 month ago is now worth…

Harvey Jones has had his eye on two value stocks from the FTSE 100. Suddenly they've both taken off at…

Read more »

Investing Articles

Gold’s hit record highs – and these former penny shares have soared over 115%!

After gold recently hit record highs, it may be no surprise that two former penny shares focused on the yellow…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how to target passive income of £633 a month

Christopher Ruane explains how an investor could turn a Stocks and Shares ISA into a passive income goldmine with a…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

How much passive income could I earn from dividends by investing £5,000 a year in the UK stock market?

When starting out it's often the first thing investors ask: how much passive income can I earn? Mark Hartley attempts…

Read more »

Young woman holding up three fingers
Investing Articles

3 steps to start investing with under £300

Christopher Ruane walks through a trio of steps that someone who wants to start investing with just a few hundred…

Read more »