easyJet (LSE: EZJ) shares have had a spectacular run in recent months. Since 9 November – when Pfizer announced it had developed a Covid-19 vaccine – easyJet’s share price jumped from around 530p to 1,030p – a gain of almost 100%. Over a 12-month horizon, EZJ is now back in positive territory, up about 2%.
Is easyJet a stock I should consider for my own portfolio? Let’s take a look at the investment case.
Should I buy easyJet shares?
I can see why the airline’s shares are popular right now. In short, the stock is a ‘reopening’ play. After the UK laid out plans for international travel to resume in late February, easyJet said flight bookings jumped over 300% and holiday bookings surged by more than 600% week-on-week. Clearly, there’s a lot of pent-up demand to travel.
It’s worth noting that City analysts expect easyJet’s revenues to more than double next financial year (its financial year ends 30 September) to £5.4bn, up from around £2.4bn this year. That’s certainly a big jump. However, £5.4bn would still be about 16% below 2019 revenues of £6.4bn.
Analysts expect the company to return to profit next year too. Currently, the net profit estimate for FY2022 is £286m, compared to an expected loss of £592m this year.
Is easyJet’s share price a bargain?
However, what concerns me about easyJet shares is that they look fully valued right now. Currently, the consensus earnings per share forecast for FY2022 is 53.2p which puts easyJet shares on a forward-looking price-to-earnings (P/E) ratio of about 19. That valuation looks quite high, in my view, considering the risks.
While easyJet’s share price is still around 33% lower than it was pre-Covid-19, it’s important to remember that a lot has changed over the last 12 months. For starters, it has more debt on its balance sheet than it did a year ago. Recently, the company raised another €1.2bn from a seven-year bond sale. This extra debt adds more risk to the investment case.
Secondly, there’s a lot of uncertainty in relation to the prospects for the travel industry in the short term. The UK government has said the earliest date Britons will be able to travel abroad for a holiday is 17 May.
However, it’s not just a matter of the UK lifting travel restrictions. Foreign governments also need to agree that Britons can visit without the need for quarantine. Currently, France and Spain have shut their borders to the UK due to the new variants of Covid-19. More variants, or new travel restrictions all pose a threat to easyJet.
My view on EZJ shares
Putting this all together, I don’t see much investment appeal in easyJet shares at present. To my mind, there’s a lot of good news priced into the stock at the moment. Trading on a forward-looking P/E ratio of 19, EZJ shares look quite expensive, in my view.
All things considered, I think there are better stocks I could buy for my portfolio today.