After the FY results, why is the price of easyjet still less than half of what it was before?

With the release of its full year results today (27 November), EasyJet (LSE: EZJ) looks like a high-flying business. Headline pre-tax profit rose to £610m and projected final profit is more than double what it was last year. But easyjet’s price is still only 49% of what it was five years ago.

Why is the share faltering – and should I add it to my portfolio?

Good performance but still showing damage

To understand that, it is useful to compare the latest results with those of five years ago, before the airline was put on the ropes by the travel restrictions of the pandemic period.

During that period, revenue was £6.4bn. Last year it was £5.7bn, which is still a long way from the 2019 level.

Last year’s core profit before tax of £610m was ahead of the £427m achieved back in 2019. Growing that number by 43% even with low sales revenue is impressive in my opinion and shows the company’s pricing power due to high customer demand, guaranteed. business model and strong product. Cost reductions in recent years can also be a permanent financial benefit of a difficult time.

But that difficult period saw easyJet increase its balance sheet by issuing new shares. So, though value The main benefits last year were higher than in 2019, the headline basic salary per share they were 31% lower than they were then.

Notifying airlines can be a tricky thing to do

Here’s why that’s important from an investment perspective.

Although the profit picture last year was strong, the large number of shares means that each share represents a smaller portion of the profit than five years ago. A common method of valuing stocks is the price-to-earnings ratio. Low earnings per share may help explain the low share price.

However, the percentage decline in easyJet’s share price over the past five years is significantly greater than the decline in basic earnings per share. Would that represent a profit?

Maybe – but maybe not.

At first, the 2019 stock price may have been absurd. For example, I think it didn’t completely risk a pandemic eliminating the need for air travel. After all, the share fell by 65% ​​between November 2019 and the following April.

Airlines can be difficult to value accurately. Profits can be suddenly affected by factors outside of their control, from fluctuating fuel prices to sudden demand shocks such as an epidemic.

So while the company has been performing well and I think the current share price looks reasonable from an airline perspective, I think I can find attractively priced companies that have more control over the risks that are important to their business. So I have no plans to buy easyJet shares in my portfolio.