EasyJet down 66% since our first tip – but ready to take off

The segment’s strong growth rate is expected to drive 23% annualized growth in the company’s earnings per share over the two fiscal years to 2025. That puts the stock on a price-to-earnings ratio, using FY25 earnings guidance, of just 7.6. That suggests the stock offers a wide margin of safety, with investors clearly not yet pricing in the much improved financial performance in the coming years.

Growth in easyJet’s holidays segment also reduces overall risk, as package holidays are relatively resilient due to the perceived value for money. The company’s risk/reward potential has also improved as its financial position has strengthened. For example, its net cash position has increased from £146m in March to £456m in June. This shows that the company is able to not only weather future periods of economic instability, but also reinvest for long-term growth.

Of course, easyJet’s share price performance has been a huge disappointment since Questor first identified the company in July 2017. Since then, the company has posted a 64 per cent capital loss and underperformed the FTSE 100 by 75 percentage points.

While we do not expect the company’s share price performance to improve dramatically in the near term, this article remains optimistic about the company’s long-term potential.

It is increasingly positioned to capitalize on an improving operating environment, while its rapid expansion into adjacent product areas provides opportunities for additional growth. With a solid financial position that has improved significantly in recent months and a wide margin of safety factored into its market valuation, the stock remains a worthwhile buy despite its poor past investment performance.

Questor says: buy

Ticker: EZJ

Closing share price: 517.4p

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