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Is It Too Late To Consider Buying easyJet plc (LON:EZJ)?

easyJet plc (LON:EZJ), which is in the airlines business, and is based in United Kingdom, received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£15.52 at one point, and dropping to the lows of UK£4.95. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether easyJet's current trading price of UK£5.26 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at easyJet’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for easyJet

What is easyJet worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that easyJet’s ratio of 5.92x is trading slightly above its industry peers’ ratio of 4.29x, which means if you buy easyJet today, you’d be paying a relatively reasonable price for it. And if you believe easyJet should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since easyJet’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of easyJet look like?

LSE:EZJ Past and Future Earnings April 2nd 2020
LSE:EZJ Past and Future Earnings April 2nd 2020

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 47% over the next couple of years, the future seems bright for easyJet. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? EZJ’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at EZJ? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on EZJ, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for EZJ, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on easyJet. You can find everything you need to know about easyJet in the latest infographic research report. If you are no longer interested in easyJet, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.