Is now a good time to buy easyJet shares?

An easyJet plane takes off

It’s no surprise that easyJet (LSE: ESY) shares were hit hard by the pandemic. March 2020 saw the share price fall almost 70% lower than the previous month. This movement fell in line with a broader hit to the travel sector as worldwide travel bans were enforced. Although easyJet shares have fallen in recent months, they are actually up 6% year-to-date and nearly 30% over 12 months. So, is it a good time to add easyJet to my portfolio?

Impressive recovery

easyJet’s Q3 results offered investors some encouraging numbers. Costs fell to £34m per week, which actually outperformed the Q1 guidance of £40m. Although these costs may seem steep, the fact that the company is performing better than expectations is a great signal to investors of effective management. In addition to this, the firm has signalled Q4 capacity will be near 60% of its 2019 levels, as opposed to 17% in Q3, meaning revenues will start to increase again. Both of these metrics seem to point easyJet shares in the right direction.

Another notable point that could help easyJet and its share price move forward is the costs streamlining the pandemic has forced on the firm. A bold (albeit sad) move of cutting staff by 30% was initially met with industry criticism. However, it is a large part of the reason the firm was able to shrink its losses to £318m for Q3. Moving out of the pandemic, I expect easyJet to continue this effective cost management, which could drive future profit margins higher. This would be great news for easyJet shares.

Risks lie ahead

There are still some serious risks to easyJet shares. The constant uncertainty of the pandemic continues to haunt the travel industry and as my fellow Fool Charlie Keough highlighted, many analysts don’t expect the aviation industry to fully recover until 2024. Predictions like this are a big red flag for stocks like easyJet.

In addition to this, the shares have fallen almost 20% in the past six months, slowing down the momentum the stock gained in the tail end of 2020. It is a similar case with peers TUI, and IAG, which have seen their share prices tumble by 29% and 22% in the past six months, respectively. This negative market sentiment doesn’t place easyJet shares in a strong position, in my eyes.

A good time to buy easyJet shares?

I think the shares still have some challenges to face. Although cost management and flight capacity numbers are encouraging, there is still a long way to go before the firm is back to its pre-pandemic self. Broader market sentiment also seems to be negative, which isn’t great news for the firm. I sold my easyJet shares in March and am waiting until I have a clearer picture of the travel industry’s future before possibly adding them back in my portfolio.

The post Is now a good time to buy easyJet shares? appeared first on The Motley Fool UK.

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Dylan Hood 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.

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