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easyJet (LSE: EZJ) shares have experienced a pullback. Over the last month, they’ve fallen about 7%.
Is this a great buying opportunity considering that the European travel industry is booming right now? Let’s discuss.
A buy for opportunistic investors?
History shows that airline stocks are typically not great long-term investments. Just look at easyJet’s share price chart.
However, there can be good medium-term opportunities at times with these stocks. And I have a hunch that we could be seeing one such opportunity right now with easyJet shares.
A recent trading update from the budget airline revealed it has quite a lot of momentum at the moment.
For the third quarter ended 30 June, easyJet reported:
- Passenger growth of 7%
- Revenue per seat growth of 23%
- Ticket yield per passenger growth of 22%
- Profit before tax (PBT) of £203m (versus -£114m a year earlier)
- A load factor of 90%
And looking ahead, CEO Johan Lundgren was confident in relation to the near-term outlook.
“We continue to see good momentum as we move into Q4 where we will be operating over 160,000 flights and expect to deliver another record PBT performance. This winter we are adding more than 15% capacity and we see bookings ahead of the same period last year,” he said.
This momentum doesn’t seem to be reflected in the valuation however.
Currently, the consensus earnings per share forecast for the year ending 30 September 2024 is 57.8p. So at today’s share price, the forward-looking price-to-earnings (P/E) ratio here is just 7.8.
At that multiple, I see value on offer.
Near-term challenges to navigate
Having said that, easyJet is facing a few challenges at the moment, so there are risks here.
For starters, it could be looking at a lot of disruption in the form of air traffic control and ground staff strikes in the near future.
In July, the company was forced to axe 2% of its summer flight schedule over these issues. We may see more cancellations going forward.
The heat wave across Europe also adds some uncertainty. Recently, wildfires in Rhodes and Corfu have led to evacuations from these islands.
Then there’s the uncertain macro environment. Last month, Ryanair CEO Michael O’Leary said he was concerned that inflation, higher interest rates, and higher mortgage rates could affect consumer spending in the second half of the year. This is something to keep an eye on.
My view
I reckon however, that after several years of Covid-related travel disruption, spending on travel in the years ahead is likely to remain robust.
So while I believe that there are better/safer ways to play the travel theme as a long-term investor, I think easyJet shares could be worth a closer look right now.
