The last time I wrote about the FTSE 100 low-cost airline easyJet (LSE: LON:EZJ) coincided with a sharp pickup in its share price. But the surge was short-lived. It has crashed 48% since (at the time of writing). So would I invest in it now? Yes, but with a caveat. I’ve said this before, but it bears mentioning again. This is one for the risk takers. There are both arguments in its favour and against EZJ. Whether we invest or not depends on how we weigh the risks against the potential rewards.
easyJet’s return to business The one development in EZJ’s favour is its return to business. Arguably, near total shutdown is a death knell for any company if it continues for a prolonged period. But as the pandemic eases, there’s news of its business coming back on track, according to a Telegraph report. In fact, even Prime Minister Boris Johnson has mentioned that steps towards easing the lockdown will be announced soon. This is good news at any time. But when a company’s just availed itself of government support to keep chugging along, it’s great news!
Promise of the past I think EZJ’s past performance is also encouraging to me as an investor. It’s been a financially healthy company in the past. The Covid-19-driven lockdowns and the recession currently underway will both take their toll on its financial health, however. It follows that EZJ won’t be in the pink of health anytime soon. But as the recession begins to lift, I think better times can be expected for airlines, and EZJ is no exception. It will take a while, though.
Internal conflict at EZJ But I also understand investors’ hesitation in buying EZJ right now. The biggest investor and founder of the company, Stelios Haji-Ioannou, wants orders for planes cancelled to save money for the airline. He’s at loggerheads with the board on this, and an outcome is due later this month. Internal conflict is never good for a company, and a spillover onto its share price is hardly surprising.
Warren Buffett sell-off Recently, Warren Buffett’s views got added to the mix when considering aviation stocks. It so happens that the legendary investor sold off his US airline stocks recently on pessimism about the industry’s future. This has raised a red flag in investors’ minds about aviation stocks everywhere. That includes EZJ, of course.
Foolish takeaway on the easyJet share price In sum, I think there’s a lot of upside in the making for easyJet. But, it will require a fair bit of patience before it pays off. It also requires entertaining the possibility of the investment not paying off at all. Ultimately, whether I invest in it or not depends on how I assess the possibility of the stock going all wrong or not. Personally, call me contrarian, but I’m more in favour of it than not. But I’m waiting for its board meeting’s outcome later this month before my mind is made up.
The post The easyJet share price is down 48%. Here’s why I think it’s a bargain buy (or not) appeared first on The Motley Fool UK.
Manika Premsingh 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.
Motley Fool UK 2020
First published on The Motley Fool
