At the time of writing, the easyJet (LSE: EZJ) share price is changing hands at around 620p. This is a significant discount from the company’s pre-pandemic level. In 2018, the shares touched an all-time high of around 1,500p.
A lot has changed since then. The pandemic gutted the business, and it had to pull out all of the stops to survive the crisis.
Since then, the business has been struggling to return to growth. It does not look as if passenger numbers will return to 2018 and 2019 levels any time soon.
While the company recently reported a significant increase in fiscal first-quarter revenues of £805m from £165m this time last year, passenger numbers were still just 64% of 2019 levels. These numbers suggest that the business’s recovery has a long way to go.
Still, I think there is a chance the stock could rise substantially from current levels the group’s operating performance improves as analysts expect over the next two years.
EasyJet share price outlook
The most significant factor that will dictate the company’s performance over the next couple of years is passenger numbers. When passenger numbers return to 2019 levels, the corporation’s sales and profits should follow suit.
Unfortunately, some other factors will also influence the outlook for the easyJet share price. Rising fuel prices and wage costs will hit overall profit margins. Then there is the competitive environment to consider.
All of the company’s peers are also trying to entice consumers back to their brands. Some are offering significant discounts, which could start a price war in the sector.
The one advantage easyJet has over the competition is its holidays business. Unlike other airline groups, which tend to point consumers to third parties to book hotels and other experiences, easyJet holidays does all the work for consumers.
This provides a differentiator for the group in a competitive environment.
And I think this differentiator could help drive the company’s recovery over the next few years. If consumer confidence recovers significantly over the summer, there could be a substantial increase in holiday bookings. This would help the organisation’s holidays business and its airline.
If this growth continues throughout the rest of the year, earnings growth could quickly return. If growth returns, the market could re-rate the easyJet share price.
Growth potential
City analysts believe that by 2023, the company’s earnings will have returned to 2023 levels. If the organisation achieves this target, it is currently trading as a forward price-to-earnings (P/E) multiple of 13.1.
In comparison, many of its peers are selling at a P/E of 20. If the stock hits this valuation, the easyJet share price could hit 950p or 55% above current levels. However, this does not take into account any potential growth after 2023.
As such, in the best-case scenario, I think the stock has substantial potential over the next couple of years to rise 50% or more. The business may encounter some challenges along the way, but I would buy the stock for my portfolio to take advantage of this growth potential as the economy recovers from the pandemic.
Rupert Hargreaves 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.
