The easyJet (LSE: EZJ) share price has been consolidating.
With the stock near 495p, it’s been trading in a narrow range since the end of January.
That means nothing regarding the progress of the underlying business. But whenever a stock consolidates, there’s an opportunity to research a company with a view to buying.
Over the past year, easyJet is down by just over 9%. So, there’s still the possibility of decent long-term value for investors. However, there’s been quite a bull run since last autumn’s general stock market lows. And the shares are more than 75% higher than their price last October.
The stock has been volatile, but the business less so.
In fact, easyJet has been continuing its long recovery from the dire situation it found itself in when the pandemic struck three years ago.
Beating market expectations
And three years on, it’s perhaps easier to appraise the case for investing in the company. After all, it would have taken nerves of steel to open a position in easyJet shares in 2020. Even the billionaire investor Warren Buffett was dumping his airline stocks.
But now, for example, the company’s 2021 £1.2bn rights issue is behind it. And today, earnings have been restored while the balance sheet looks pretty strong with debts under control.
In January’s first-quarter trading update, easyJet said it anticipates beating market expectations for profit for the full trading year to September 2023.
And City analysts now expect earnings to come in at about 28p per share. But that’s quite an improvement from the losses we saw from the company in 2020, 21 and 22.
The outlook is promising too. Estimates for the trading year to September 2024 are for an increase in earnings of just over 40%. This turnaround looks like it’s well and truly turning.
A growth trajectory
In January, chief executive Johan Lundgren said the company had seen strong and sustained demand for travel in its first quarter. And that led to the firm carrying some 50% more passengers than a year earlier.
And the strong performance in bookings boosted the coffers by about £80m in the period. The momentum has been continuing too. Lundgren said the company upgraded its already ambitious growth plans for the year because of the strong demand.
Earnings are seasonal in the airline and holiday business. But Lundgren expects the winter loss to reduce “significantly” over the first half of the trading year compared to the prior year equivalent period.
In summary, I’d say the easyJet business has healed its pandemic wounds and is set on a growth trajectory now.
Meanwhile, the forward-looking price-to-earnings multiple is running at just under 13 for the trading year to September 2024. And that valuation looks fair to me.
However, there are clear risks with this business. It is, after all, cyclical and vulnerable to general economic shocks, as we’ve seen.
Nevertheless, there’s an undeniable growth story unfolding here. And I think easyJet is well worth further research now with a view to buying the stock for a long-term hold.
