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easyJet’s (LSE: EZJ) share price is down 16% from its 12 December one-year traded high of £5.90.
But this does not automatically make it a bargain. It all depends on whether there is a gap between price and value.
So, is there one here, and if so, how wide is it?
The gap
Comparisons of key stock measures can be a useful starting point. If an entire sector is mis‑valued, component stock values can be distorted.
However, this does not apply to the global airlines sector. Currently, it has an average trailing price-to-earnings (P/E) ratio of 12.35. Conversely, the average trailing P/E ratio for global stocks across all sectors is approximately 22.02.
So, if anything, this sector is undervalued.
Within that, easyJet’s P/E of 7.6 is at the high end of its peer group, which averages 7. These comprise Wizz Air at 6, Jet2 at 6.2, International Consolidated Airlines Group at 6.7, and Singapore Airlines at 9.
However, on the key price-to-sales ratio, easyJet’s 0.4 is undervalued compared to its competitors. And the same applies to its 1.1 price-to-book ratio against its peer average of 2.
To cut to the chase on this, I ran a discounted cash flow analysis. This pinpoints where any stock should be trading, based on cash flow forecasts for the underlying business.
It shows easyJet is 49% undervalued at its current £4.88 price.
So, its fair value is £9.57.
Strong core business?
Earnings growth ultimately powers any stock’s price over time, higher or lower.
A risk to easyJet’s is any enduring spike in oil prices, which would push fuel costs higher with it. Strikes in the labour force are another risk, as are geopolitical disruptions that can cause popular routes to be closed.
That said, analysts agree that Europe’s second‑largest low‑cost carrier (after Ryanair) will see significant earnings growth. Specifically, the forecasts are for 8% a year on average until the end of 2027.
This looks well supported by recent results. On 25 November, it released its 2025 numbers showing its third consecutive year of earnings growth.
Earnings before interest and taxes soared 18% year on year to £703m, while profit before tax (PBT) jumped 9% to £665m.
Moreover, the easyJet Holidays business hit its £250m PBT medium‑term target early. The firm has now increased its guidance to a PBT of £450m by 2030.
Overall, easyJet says it is progressing towards its medium-term (end-2027) target of £1bn+ PBT.
My investment view
Since the easing of Covid restrictions at the end of 2022, easyJet has recorded consistent, strong growth.
This looks set to continue over the medium term to 2027 and beyond that to 2030 at minimum.
The stock also looks the proverbial ‘steal’ to me, given its extreme undervaluation.
My only reason not to buy it right now is its 2.6% yield. This lags both the FTSE 100 average (3.1%) and the 10-year Gilt (4.4%).
That said, for investors for whom this is not important, I think easyJet merits serious consideration.
Meanwhile, I have my eye on other high-growth stocks that also deliver high dividend yields.
