I was right about the easyJet share price. Here’s what I’d do next – The Motley Fool UK

easyJet (LSE: EZJ) has had a wild ride in the past year. When I wrote about it last year at around this time, the easyJet share price was at 620p. It fluctuated a lot during 2020 as uncertainty about the coronavirus crisis prevailed. 

It has, however, made more consistent gains since vaccines were developed and the stock market rally started in November last year. It’s up by more than 65% compared to a year ago. 

I had anticipated firm recovery in the easyJet share price, which is why I wrote last April that I would consider buying it. And that’s exactly what I did.

Is easyJet a buy for me now?

The point I’m wondering about now is whether easyJet is a buy at the current share price as well. This is for three reasons. 

One, for all its gains in the past year, the easyJet share price is still less than half that of its pre-crisis highs of early 2020. Other coronavirus-affected stocks have managed to get past these levels. In fact, they’ve even surpassed them. Perhaps there’s hope for easyJet too?

Two, investor bullishness is back. And I think it will stick around for a while. Forecasts for the economy are robust and the system is flush with liquidity. Unless there are any fresh shocks, I would think that stock markets would stay elevated. 

Three, I reckon that travel stocks in particular are set to gain further as they resume operations. As (hopefully) improved passenger numbers trickle in and revenues rise, investor confidence should get a further boost. 

Can the easyJet share price go back to pre-crisis highs?

But whether the easyJet share price can go back to its pre-crash highs is another question altogether. The company’s financials are nowhere near where they used to be last year. The combination of limited revenues and high fixed costs has meant losses and indebtedness for the once-financially-healthy company. 

It’s widely expected that air travel will take around a couple of years before it goes back to 2019 levels. Until then, easyJet may see improvements. But I don’t think it will regain its earlier financial health in a hurry.

What I would do next

On balance though, I think the easyJet share price can rise from here. Compared to other low-cost airlines, the stock is relatively cheap, with a price-to-sales (P/S) ratio of 1.5 times. The number stands at 6.6 times for Ryanair and 4.6 times for Wizz Air

Also, Ryanair is close to multi-year highs right now and Wizzair has just come off all-time highs. I think that these stocks could lose some of their lustre as they start looking pricey. Investors could rotate into beaten down stocks like easyJet as a result.

I’m less sure if easyJet will go back to its pre-crash highs any time soon though. To really benefit from this stock purchase, I would buy and hold it for at least the next few years, if not more.

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Manika Premsingh owns shares of easyJet. The Motley Fool UK has recommended Wizz Air Holdings. 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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