What on earth is going on with the easyJet share price?!
The easyJet (LSE:EZJ) share price started the week at £4.62, before climbing to £5.10 and then falling back to £4.82. The stock market can be volatile but these are big moves.
The big story has been the possibility of the company being taken over by Mediterranean Shipping Company (MSC). And this is something that I think investors should pay attention to.
Landing slots
Low-cost airline easyJet has been the subject of takeover speculation for some time. Ryanair CEO Michael OâLeary highlighted this as a possibility recently given the easyJet’s recent lack of growth.Â
One of the big attractions to buying the FTSE 100 company is it has some important assets. Airports have finite capacities, which makes landing slots in certain locations extremely valuable.
easyJet has attractive positions in Gatwick and Paris. So with its shares trading at around 30% of pre-pandemic levels, another operator might see this as a bargain opportunity.
The stock jumped this week on the news of a potential takeover bid from MSC, before falling back as everyone involved denied any interest. And thereâs something important for investors to note here.
Speculation risk
An acquisition offer might mean thereâs quick money to be made for anyone who buys the stock at todayâs prices. But itâs an extremely risky move and one that could backfire spectacularly.
Various parties might think itâs likely, but thereâs no guarantee a concrete offer ever comes in for the company. And thatâs not the worst-case scenario.
If the stock falls, easyJet could find itself being acquired below the current share price. That would result in a loss for investors and itâs worth noting analysts are not optimistic about the near future.
Earlier this week, Morgan Stanley initiated coverage on the stock with a Sell rating based on rising costs and lower prices. That makes buying the shares and hoping for a takeover look very risky.
Takeover talk
Thatâs not to say that I completely ignore the possibility of a takeover when I invest. I look for stocks that I think are undervalued and I know thereâs a chance a major operator might agree.
Itâs not, however, a reason that I buy any stock. As an illustration, consider my investment in DCC, which used to consist of an energy division, a healthcare operation, and a technology business.
When I started buying the stock, I knew the firm had plans to sell off its healthcare and technology units. But I thought the share price looked attractive whether or not this happened.
The growing energy business looked attractive to me â and still does. A recession is always a risk for this type of company, but Iâm still looking at the possibility of adding to my investment.
Final Foolish thought
Investors donât have to â and in my view, shouldnât â ignore whatâs going on in terms of potential takeovers. Itâs an important part of understanding the future potential of the business.
A lot of the time, though, this can be a risk. Anticipated offers might never materialise, or they might come at a price that doesnât generate a good return for existing shareholders.
This is why I think investors shouldnât buy stocks just on the basis of future takeover potential. But it can be nice when it aligns with a wider investment thesis based on the companyâs long-term prospects.
The post What on earth is going on with the easyJet share price?! appeared first on The Motley Fool UK.
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Stephen Wright has positions in Dcc Plc. 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.
