I sometimes see a stock and I feel that investors are just waiting to get back in. I think that now when I look at the easyJet (LSE: EZJ) share price.
It’s at 360p, as I write. But it was above 500p as recently as June.
How quickly might it get back above a fiver?
Valuation, valuation, valuation
Valuation is what matters most. And it can be hard to work out, with any degree of confidence.
The budget airline posted a loss in 2022, so there’s no trailing price-to-earnings (P/E) ratio to work from.
But easyJet’s September update indicates a headline profit before tax of £440m-£460m. That’s after a record fourth quarter, and firm should hit all its 2023 targets.
The forecast P/E for 2023 is down around 7.8. And it could drop as low as 5.5 based on 2025 predictions. Those are very uncertain, of course.
Dividends from easyJet?
Here’s what really strikes me. Back in the pandemic’s depths, I feared it could be a very long time before airlines were paying decent dividends again. And when they did, I thought the cut-price flyers would be the last to get back to having the free cash for them.
But City analysts think we could see a dividend yield of 3%, or more, in 2024, growing to 4.5% by 2025.
I confess I’m a little sceptical. But if that comes off, I reckon the easyJet share price could easily soar past 500p.
Still cheap at £5?
A 500p share price would still put the 2025 P/E at only 7.5. That’s way below the long-term FTSE average, and in line with this year’s. That’s if earnings growth forecasts are right.
Full-year results are due on 28 November. And if they’re as good as that September update suggests, I reckon the easyJet share price could get a nice boost on the day.
But before I get too excited, there is one key reason for caution.
The first half of 2023 saw a headline loss before tax of £411m. And the expected success in 2023 is almost entirely down to the record fourth quarter.
No trend yet
A single quarter is surely way too short a period to base any decisions on. And in the airline business, especially when the economy is struggling, a lot could change in the next quarter. Or the quarter after that.
I don’t see any specific dark clouds on the easyJet horizon. But we could be in a shaky market for airline shares for a while yet. It’s a very volatile sector, and holiday flights are among the first things to be dumped when pockets are squeezed.
I do however think the easyJet share price could get back to long-term growth soon.
Even a £10 share price by 2025 would put the stock on a P/E of 15, which isn’t crazily high. Now I really don’t think that will happen so quickly.
But I do see 500p as a real possibility in the medium term. Just as long as we don’t hit too many new global crises.
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Alan Oscroft 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.
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