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EasyJet’s (LSE: EZJ) share price had dropped 5% from its 12 December one-year high of £5.90. This followed the 22 May release of H1 2025 results that showed a headline loss before tax of £394m.
To ascertain whether this is a good time for investors to consider the stock, I took a close look at the business.
Why did it make a loss?
A company making a loss is not necessarily a significantly negative factor. It depends on why it happened, and what the outlook is.
According to easyJet, the loss was a result of a combination of factors. One was that investments to increase long-term passenger capacity led to a short-term reduction in revenue per seat.
Another was an increase in indirect costs, notably jet fuel. And the final one was the Easter holiday being later this year than usual, which removed the bookings from that quarter’s numbers.
A risk here is that jet fuel costs rise further and remain at levels higher than recent historical averages. Another is that the cost of living surges again, leading to a drop in holiday bookings.
Now for the core business prospects
The airline reported that forward bookings for H2 this year are 77% sold. And it expects growth in available seat kilometres (ASK) of 8% for this year as a whole.
ASK is the total carrying capacity of an airline and helps airlines evaluate capacity and efficiency. It is calculated by multiplying the number of available seats on a flight by the distance travelled in kilometres.
Additionally positive in my view the openings of three new bases in Southend, Milan Linate, and Rome Fiumicino ahead of this summer.
As I write on 29 May, analysts forecast that easyJet’s earnings will grow by 11.1% a year to the end of 2027.
Are the shares undervalued?
The first part of my standard share price assessment is to compare the key measurements with comparable stocks.
EasyJet’s 0.4 price-to-sales ratio is undervalued compared to its peers’ average of 0.6. These comprise Wizz Air at 0.4 as well, International Consolidated Airlines Group at 0.5, as is Jet2, and Singapore Airlines at 1.1.
It is also undervalued at a price-to-book ratio of 1.6 against a 2.8 average for its competitors.
I ran a discounted cash flow analysis to pinpoint where easyJet’s share price should be, based on future cash flow forecasts.
This shows the stock is 51% undervalued at its current £5.61 price.
So the fair value for the stock is technically £11.45.
My verdict
The strong earnings growth prospects and deeply undervalued share price make easyJet look like a stock worth considering for investors whose portfolios it suits.
However, as mine is geared towards high-yielding stocks and easyJet’s dividend return is just 2.1%, it is not for me.
