FTSE 250 constituent easyJet (LSE:LON:EZJ) has seen two major developments in recent days and weeks. As a result, I’m wondering whether EZJ is a worthy investment candidate today.
Make no mistake, easyJet is under heavy pressure. With government travel restrictions in place and ever changing, travel operators have seen operations affected.
FTSE 250 stalwart The low-cost airline group covers over 1,000 routes across Europe and beyond, but has seen its usual level of demand decimated due to the pandemic.
The first interesting development is that of a substantial insider share purchase. According to a filing by EZJ on 4 August, deputy chairman Charles Gurassa purchased over 90,000 shares at a price just over 550p per share. This equates to almost £500,000 in total.
Gurassa is a seasoned travel sector insider who’s seen the industry during good times and bad. Prior to his current role with EZJ, he served as CEO of Thomson Travel Group. Gurassa also had stints at TUI (LON:TUIT) Northern Europe and British Airways.
A substantial trade by such an insider suggests confidence in EZJ’s investment viability moving forward.
And the second development? Well, I wasn’t surprised when the firm said it would be closing three of its bases in the UK. This would result in the loss of close to 700 jobs as the pandemic continues to squeeze the travel industry. Back in May, EZJ had already said it would need to axe 4,500 jobs across Europe to prepare for a smaller travel market.
Recent performance When the market crashed and the FTSE was decimated, EZJ lost close to 70% of its value. Its share price tumbled from over 1,550p per share, down to its lowest point of 475p. EZJ is currently trading at close to 550p, which is still very low. I feel this cheap price could be viewed as an opportunity.
Back at the beginning of August EZJ released a Q3 trading update. Although the figures weren’t expected to make great reading, for me they were even worse. It confirmed that the number of flights, aircrafts in operation and passengers flown were down by over 96% compared to the same period last year. Revenue was down by over 99% compared to the same period too. The only silver lining I saw in the update was the massively reduced costs as most of EZJ’s fleet was grounded.
There’s a huge amount of uncertainty associated with Covid-19 and UK shares, and the travel industry has been one of the hardest hit. But these recent developments at EZJ tell contradictory stories: weak results and a director confident enough to commit substantial cash to a bet that the firm can bounce back. easyJet is a share I’m interested in as people will be itching to get away on holiday in the months and years ahead.
Verdict That being said, I wouldn’t rush to buy the shares just yet. Although EZJ’s share price is dirt-cheap in my opinion, the travel sector represents too much of a risk. Will customer demand ever reach pre-Covid levels? The fact that fuel costs are rising doesn’t help matters either. There are better FTSE shares out there in my opinion. I always point towards stocks with defensive qualities during a market crash. Unfortunately in the current market downturn, EZJ lacks these qualities, in my opinion.
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Jabran Khan 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