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The easyJet (LSE: EZJ) share price history suggests investors have a bit of a love/hate relationship with the company. But after H1 results on 22 May, it doesn’t look like there’s a lot of loving going on right now.
The stock’s gained 17% in the past 12 months, so those who saw a recovery coming seem to have been on the right track. But on results day, the price fell back 2.6%.
The budget airline did report a headline loss before tax of £394m. But we should expect a loss in the winter season. And it was in line with consensus, and actually a slight improvement on last year.
It does seem like we could be in a phase when investors expect to see their companies beating forecasts. The patience the market shows when waiting for a recovery to build can sometimes wear a bit thin.
What’s so bad?
easyJet expects available seat kilometres (ASK) to grow around 8% for the full year. It does suggest “less pronounced growth in H2“, so might that be part of the negative reaction?
The headline cost for available seat kilometres (CASK), excluding fuel, is expected to come in broadly flat. And the outlook for oil for the rest of the year makes me suspect fuel prices could fall further.
Forward bookings for Q3 and Q4 are 80% and 42% sold already, which seems positive to me. Again, that’s an improvement on last year. And easyJet holidays looks like it could be the star of the show with around 25% customer growth year on year. Forward bookings for the second half are already 77% sold.
CEO Kenton Jarvis spoke of “strong demand for easyJet’s flights and holidays,” adding “we remain focused on delivering another record summer this year.” He said the company is progressing “towards our target of sustainably generating over £1 billion of annual profit before tax.”
Do I see any good reason for the share price fall on the day? Not really.
What to do?
Maybe one problem is that the airline business can be a volatile one. One minute things might look great. But before we can say “please have your passports and boarding cards ready“, the outlook can dip sharply.
Could the latest UK inflation shock be triggering fears of people reining in their spending and postponing this year’s holiday in the sun? With prices up an unexpected 3.5% in April, I could certainly see that having a hit on investor sentiment.
I’m always cautious of the airline industry and its intense price competition. For that reason, I think companies deserve a lower-than-average valuation. But forecasts suggest a full-year price-to-earnings (P/E) ratio of only about eight, and they see it dropping to seven by 2027. I really can’t help thinking that could be too cheap.
I won’t buy airline shares because my nerves can’t take the potential volatility. But I think investors who are less worried by that could do well to consider easyJet now.
