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The easyJet (LSE: EZJ) share price is up 40.77% over the last year, and the recovery could have further to fly if analyst forecasts are to be believed. Time for me to hop on board?
I was tempted to buy its shares a year ago, right at the start of their strong run. On 26 November last year, I noted that the budget airline had posted losses for three successive years. However, they’d narrowed from £1.03bn in 2021 to just £208m in 2022, and 2023 was expected to be profitable. The only thing that stopped me from buying it back then was that I didn’t have any spare cash in my trading account.
Can this FTSE 100 stock climb still higher?
Then easyJet duly reported a full-year profit of £455m in 2023, at the higher end of expectations. Its easyJet holidays division was rampant with profits before tax up 221% to £122m.
The balance sheet looked a lot more solid with £41m of net cash and £4.7bn of liquidity. No wonder easyJet shares have flown since. Sadly, they departed without me.
I’m always wary of buying a stock after it’s had a good run like this one, yet broker forecasts suggest easyJet still has plenty of fuel in the tank.
A total of 20 analysts offer one-year share price forecast and they have set a median target of 664.2p. If they’re right, that would mark an impressive increase of 28.43% from today. So what are the chances?
The shares still don’t look that expensive, trading at 11.48 times earnings. That’s below the FTSE 100 average of 15.4 times.
They look even better value judging by a price-to-revenue ratio of just 0.5. This suggests investors only have to pay 50p for each £1 of earnings.
More growth and income to come
Operating margins seem tight at 5.5% but are expected to edge up to 6.7% next year. The trailing yield’s 0.87% but forecast to hit 2.3%. And given that it’s handsomely covered 5.2 times by earnings, there should be more dividends on the way.
The group hailed a record summer with third quarter profit up 16% to £236m. easyJet Holidays continues to deliver, with profits up another 49% to £73m. Its net cash position’s now up to an impressive £456m.
Those numbers look good to me but challenges remain. Airline ticket prices have dipped as more capacity returns to the market, which could squeeze margins. This is a highly competitive market and the cost-of-living crisis isn’t over yet.
Like any airline, easyJet’s shares are at the mercy of everything from geopolitical tensions to natural disasters and oil prices. Today’s falling fuel prices should help with margins, although if the oil price spikes for any reason, easyJet shares could head south.
Obviously, I wish I’d bought easyJet shares a year ago, but I still think there’s a great opportunity here today. I’ll buy when I have the cash. Now where have I heard that before?
