Airline stocks haven’t performed well this year. This is unsurprising, given that the global pandemic has ground international travel to a halt. Without any customers to board the planes, revenue has dried up for airlines. Add onto this the fixed costs of running the company, such as staff wages and forward-bought oil, and there’s a clear problem. The easyJet (LSE: EZJ) share price is one such example in the industry. The problems mentioned above saw the share price fall below 500p briefly in March. When you consider the shares traded above 1,500p in February, this was a large slump.
Forward thinking
So why am I thinking that the easyJet share price could be primed for a move higher? The main reason behind this is that investors are forward thinking. I assume that the current share price (in part) reflects the expectations for the stock for the near future. When any news comes out, the share price moves not just on the impact of that news today, but what the news could mean for the company further down the line.
A good example of this can be seen from the easyJet share price in recent days. Yesterday, the firm announced that it was seeing a 200% increase in searches for flights. The share price rose after the announcement. This news won’t benefit easyJet right now, but it will be reflected in a rise in passenger numbers when 2021 results are published. It will also likely see a more profitable 2021 on the back of this.Â
As a result, the share price could continue to move higher should we see more news in the short term that mean positive long-term benefits for the company.Â
An undervalued share price
The easyJet share price has quite rightly been sold hard by investors this year. I already mentioned the key reasons for this. But with the share price still needing to rally 80% to get back to levels seen at the start of the year, the stock does look cheap.Â
The business has announced it’s cutting staffing costs by 30% and ensuring that its liquidity is high. It had £2.3bn in cash at the end of the fiscal year at September 30. As tough as the pandemic has been for the firm (a pre-tax loss of £830m is expected for this year), it’s doing all the right things to come out on the other side in a better place. Investors could start to appreciate that the business is unlikely to go bust. This should see the share price move higher as uncertainty about the business’s survival diminishes.
Finally, the last reason I think the easyJet share price has good potential is simply the fact that the world is looking to be in a better place to tackle the virus. I’ve written how the positive vaccine news recently is providing a boost to stocks. The airline sector will be one of the largest beneficiaries of a vaccine rollout. It will enable consumers to travel with confidence, and open up borders, allowing easyJet to increase flights and capacity. This may need to wait until next summer, but when it comes, the easyJet share price should rally, so it’s on my watch list.