EZJ – general thoughts

EZJ (easyjet) issued its Q3 trading statement today
(http://is.gd/SBbbpV). As usual, John Rosier’s blog contains a pithy rundown (http://is.gd/NOdLNe) on the results.

Analyst consensus PBT forecasts for the year were around the £440m mark – but the company expects it be in the region of £450m – £480m.

Total revenues were up 10.5% due to both capacity increases and revenues per seat.

The share price dropped about 4% yesterday prior to the release – which is always disconcerting. The fears were misplaced though, as the results were well-received by the Market, and the shares are up about 7% as at writing.

EZJ fits in well with my (developing) momentum strategy, which looks at top-quintile 6-month relative strength where the share price is not over-extended on the 50 dMA.

Yesterday, one analyst had suggested selling the shares, as they have had a fantastic run over the last year – up 169% – well ahead of the indices, of course. This can be tricky, of course, because you’re really looking for momentum to continue.

What my strategy doesn’t tell you is when to get off the bus due to faltering momentum! Falling out of the top quintile of performance is one sensible criterion, of course. A breakdown in fundamentals is another obvious candidate, as well as general poor reaction to news. I think a fair bit of judgement is required.

What is perhaps, surprising, is that I don’t think that mixing value with momentum is a good idea. I remember an article on The Motley Fool from a few years ago, which combined growth shares with low PEs. The results were disastrous.

Backing that up … I did an experiment a few weeks ago looking at the performance of the low PE stocks and the high PE stocks in the top quintile of RS6m (6-month relative strength). The results were pretty striking: you stand a much better chance of outperforming if you choose stocks where the PE is ABOVE the median for the market. I’m not necessarily saying that you should invest like a gambler on full tilt in all markets, of course, but it’s usually the high PE stocks that perform the best.

Happy investing to you all.

Advertisements

About mcturra2000

Computer programmer living in Scotland.
This entry was posted in Uncategorized. Bookmark the permalink.

One Response to EZJ – general thoughts

  1. I can’t see the stock giving back much of the current gains (+8%) today. Management was very confident during the call and described the current bookings situation as “buoyant” while seeing potential to cut costs further. I think reserved seating and business travel will grow fast will provide further upside surprises this year. The main risk at this stage is Ryanair and the liked increasing capacity to make the most of the current environment, but newsflow likely to remain positive during the summer so I will hold (watch tough comps for September, though).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s