Up 28%, can the easyJet share price continue to rise?

Last year saw easyJet (LSE: EZJ) reports strong demand and brings back its dividend. Over 12 months, the easyJet share price increased by 28%.

Where could things go from here – and should I invest?

Strong performance and high demand

When presenting interim results in May, easyJet announced some good news regarding customer demand.

The number of passengers increased by 11% compared to the same period of the previous year. Revenue jumped 23% to £3.3 billion. At the same time, overall costs (i.e. costs excluding exceptional items) increased more slowly, by 17%.

Nonetheless, there was an overall pre-tax loss of £350m. This is substantial, especially given that the company has a market capitalization of less than £4 billion.

Summer is peak season for airlines like easyJet and the company is expecting a good season which should strongly boost its profits. Net profit last year was £324 million. This means that the current price-to-earnings (P/E) ratio is 11. If the company meets its expected earnings growth, the potential P/E ratio will be even lower.

Since the release of interim results, another quarterly trading report showed high passenger numbers and an improvement in overall profit compared to the same quarter last year. Additionally, the once-leveraged company reported net cash at the end of the first half.

easyJet shares don’t seem expensive to me

Given the airline’s recent performance, I don’t think the easyJet share price is high. If the company continues to perform well, I think it could move forward.

It has a strong brand and a proven business model. It has net cash flow and hopes to be profitable this year. The valuation relative to earnings looks cheap – and the dividend has been brought back.

Still, I’m not tempted to buy. If I had invested £1,000 in easyJet shares five years ago, my holding would now be worth just under £480, even after the strong performance of the last 12 months. Additionally, having purchased while the company was paying a regular dividend, I would then have seen these passive income streams dry up unexpectedly for several years.

Past performance is not necessarily a guide to what will happen next in the stock market. But the reasons because easyJet’s performance over the past five years reflects the continuing risks I see in the aviation industry.

Demand is difficult to predict. It can be affected by a weak economy and decimated by events beyond a carrier’s control, from health-related travel restrictions to a terrorist attack.

This is not an attractive business model in my eyes. I don’t think the current easyJet share price, as low as it appears, provides me with enough margin of safety as an investor if some of these risks materialize, as I expect they will. ‘they will be at some point in the coming years (but potentially not). for a long time). So I don’t intend to buy.