I don’t often write about a stock that I think is set to climb, but which I’d never buy. But I’m doing that now, and I’m talking about easyJet (LSE: EZJ). The easyJet share price has been crushed by the Covid-19 pandemic, as the entire travel business was flattened.
Some haven’t survived, while others may well go the same way before the full ravages of the onslaught are known. And those that make it through will be slimmed down, or saved only by a rescue deal of some sort. One way or another, nobody in this business will come through unscathed. And on that cheery note, I think easyJet shares will probably do reasonably well by the end of 2021.
The easyJet share price is down 57% so far in 2020. It looked like it was staging a recovery in June, though that’s since fallen back. But bums will surely return to seats, and investors will surely return to airline shares. And my Motley Fool colleague Rupert Hargreaves has explained why he rates easyJet among the best in the business.
Probably the best airline
The thing is, I think he’s right. I agree with just about every word he writes. It’s a popular airline, liked by passengers. When I’ve had the choice between easyJet and Ryanair, I’ve gone orange every time. It’s well managed, and has been financially sound. And I think easyJet is likely to be in better shape than most when flying starts to become medically and socially acceptable again.
And I reckon that’s all going to give the easyJet share price a boost. At least in the relatively short term.
My problem is that, yes, easyJet may well be the best in the business. But it’s the best in a truly lousy business. Airlines can’t differentiate very much, except maybe in customer service — and even there, all bar one do it well enough.
They simply compete on price, and they have zero control over the bulk of their costs. Fuel, salaries, airport slots, plane costs, fuel etc. Oh, and did I mention fuel? Oil prices are low now, but I’m sure they won’t always be. And we never know what might hit the airline business next.
easyJet share price
Look at the easyJet share price over history. There was a big rise starting in 2012, but that separated two lengthy spells of really going nowhere. Even before the lockdown hit, in early 2020 easyJet shares were only at similar levels to late 2013. Even without the current stock market crash, the easyJet share price had followed a tortuous up-and-down path to going sideways. For six-and-a-half years.
In that time, there have been dividends. And they’ve yielded somewhere between 3% and 5%. That’s not bad at all. But you could have had dividends just as good, but without the extreme share price volatility. And beyond a short-term partial comeback, I think it will be years before the airline industry gets back to its old volumes. So even if easyJet is the best in the business, it’s still a business I want no part of.
The post Why I think the easyJet share price is cheap, and why I still won’t buy appeared first on The Motley Fool UK.
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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.
Motley Fool UK 2020