Over the last few weeks, easyJet (LSE: EZJ) shares have enjoyed quite a spectacular surge. Back in mid-May, you could pick up the shares for less than 500p. Last week however, easyJet’s share price rose as high as 772p at one point.
The reason is easyJet recently announced that, after grounding its entire fleet back in March due to Covid-19, it will restart a “small number of flights” on 15 June. That’s obviously a positive development.
Are the shares worth buying now? Here’s my view.
easyJet: uncertainty remains elevated
When I last covered easyJet shares in late March, I said there was an “enormous amount of uncertainty in relation to the investment case.” My view was the stock wasn’t worth the risk.
Clearly, the outlook now looks a little better for easyJet. In a few weeks’ time, the airline will begin flying again in the UK and France. And the company plans to announce further routes over the coming weeks as lockdown measures across Europe are relaxed and customer demand increases.
Make no mistake though, there’s still a lot of uncertainty here. Potentially, it could be years before global travel returns to pre-Covid-19 levels. Recently, easyJet boss Johan Lundgren said he believes passenger numbers won’t return to 2019 levels until 2023.
And, in the near term, I think it’s likely Covid-19 will continue to throw spanners in the works for airlines. As an example, just last week, a man onboard a plane in Spain discovered he had Covid-19 mid-air, which forced the aircraft and passengers into immediate quarantine on arrival.
And don’t forget about UK quarantine rules. From 8 June, people arriving from overseas arrivals into the UK will have to self-isolate for 14 days. How will this affect travel?
An equity raise could hit the share price
Meanwhile, there’s questions over easyJet’s balance sheet. Recently, a top City airline analyst said easyJet may have to raise up to £1bn through a rights issue in the next few months. If EZJ does raise this kind of capital, it’ll most likely hit the share price.
All of these issues add a lot of uncertainty, which isn’t what you want as an investor.
Warren Buffett’s view on airline stocks
Ultimately, I think Warren Buffett has it spot on when he said recently that “the world has changed for the airlines.” He recently sold all of his airline stocks, saying the industry has been “really hurt” by events that are far beyond our control. Buffett is one of the greatest investors of all time, so his stance on airlines stocks is probably worth noting.
easyJet shares: I think investors can do better
All things considered, I continue to believe easyJet shares aren’t worth the risk right now. Yes, the share price could continue rising if the Covid-19 situation improves. But it could just as easily crash if the coronavirus situation deteriorates and the travel industry is disrupted for longer. I think buying an airline stock now is too much of a gamble.
In my opinion, you’re much better off focusing on companies poised for strong growth in the years ahead, no matter what happens with Covid-19. There are plenty of these types of companies if you know where to look.
The post easyJet’s share price has taken off! Is now the time to buy the stock? appeared first on The Motley Fool UK.
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Edward Sheldon has no position in any 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.
Motley Fool UK 2020