The easyjet (LSE: EZJ) share price has had a decent year. Shares in the budget airline are up 20% in the past 12 months and trading at £5.89. While that’s still down 53% from the pre-pandemic era of five years ago, it does mean investors have been seeing some value in the stock.
Despite strong gains, that still means the stock has a price-to-earnings (P/E) ratio of just 9.9. The Footsie average is around 14.5 at the moment so it does make the easyJet share price look cheap at face value.
I thought I’d take a look at the stock to see whether this budget airline is a bargain hiding in plain sight or there is more than meets the eye.
Recent results
In its results for the year ended 30 September, easyJet posted a 34% increase in pre-tax profits to £610m including record second-half profits. Top-line revenue growth of 14% to £9.3bn was fuelled by another record summer of travel.
Forecast growth in its easyJet holidays segment and an expectation of reduced winter losses were notable highlights, with the airline forecasting a 3% increase in capacity next financial year.
The easyJet share price has been climbing higher since the release in late November with investors reacting well to the boost in earnings and forecast growth trajectory.
That said, the consensus of analysts’ forecasts is that easyJet’s earnings will grow by 10.4% a year to the end of 2027. That’s despite an ultra-competitive airline industry and the threat of rising fuel prices that could squeeze earnings and hurt profitability.
Valuation
So, the easyJet share price is trading at 9.9 times earnings. I thought I’d take a look at how this stacks up against some other UK airline stocks.
Wizz Air shares are valued at 8.1 times, while Jet2 is 8 at the time of writing. That indicates to me that investors are placing a premium on easyJet compared to some of its budget airline peers.
The next metric I looked at was price-to-book (P/B) ratio. The current easyJet share price gives the company a P/B ratio of 1.8 compared to 9 and 2 for Wizz and Jet2, respectively.
That’s a bit of a mixed bag on the key valuation metrics. easyJet is the largest of the three by market cap, boasting a £4.4bn valuation compared to Wizz (£1.6bn) and Jet2 (£3.5bn).
Am I buying easyJet shares?
easyJet isn’t one that I will be buying for the moment. While the latest results show signs of growth, and the airline’s Airbus fleet has helped it avoid many of the issues plaguing the industry, I think there is more volatility to come.
Rising geopolitical tensions in the Middle East can easily impact passenger numbers as well as fuel costs. Continued cost-of-living pressures could also hit consumers hard and limit leisure spending.
Instead, I want to bed down my current portfolio and focus on high-quality dividend shares that can deliver some yield and hold their value through the economic cycle.
The post Trading under 10 times earnings, is the easyJet share price too low? appeared first on The Motley Fool UK.
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Ken Hall 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.
