This FTSE 100 stock has crashed 30% in 3 months, but could it be time to load up?

question marks written reminders tickets
question marks written reminders tickets

The share price of FTSE 100 blue chip easyJet (LSE: EZJ) was flying high in the summer but has plummeted 30% in little more than three months. Meanwhile, small-cap easyHotel (LSE: EZH), which released a trading update today, has seen a pullback of 20% from its summer peak. Is this a great opportunity for investors to buy into these out-of-favour stocks?

Strong trading

Despite the recent turbulence, easyJet has delivered a terrific return for long-haul investors since its flotation in 2000. The shares have more than quadrupled in value and there have been nice dividends on top.

The company released a trading update two weeks ago. It said that with strong trading having continued in the fourth quarter of its financial year ending 30 September, it now expects to deliver full-year pre-tax profit of between £570m and £580m — in the upper half of previous guidance. Nevertheless, the share price has continued to decline and remains depressed at around 1,200p.

Market overly pessimistic?

City analysts are forecasting earnings per share (EPS) of 118.2p for the year, giving a cheap price-to-earnings (P/E) ratio of 10.2. In addition, with a 54.5p dividend forecast, there’s a high-altitude 4.5% yield. For fiscal 2019, forecasts of 13% EPS growth bring the P/E down into the single-digit bargain basement, while the dividend yield rises to over 5%.

The market’s big fear seems to be that the European regional aviation market could be materially adverse for easyJet, post-Brexit. I think this fear is overly pessimistic and with the company having contingency plans for possible outcomes, I rate the stock a ‘buy’.

Accelerated expansion

easyHotel’s share price hasn’t moved on today’s trading update. At 101.5p, its market capitalisation is £148m. Having floated on AIM at 80p in 2014, can this super-budget hotel chain follow the same path as easyJet, whose market capitalisation has grown to £4.7bn?

Today’s update told us of a strong operating performance for the year ended 30 September, as well as accelerated expansion. The company opened five new owned hotels during the period and four in its franchise portfolio. These combined openings increased the group’s room count by 42%, taking its total network to 33 hotels and 3,068 rooms across 27 cities in the UK and Europe. There are almost as many rooms again in its development pipeline.

Ludicrously expensive?

easyHotel is forecast to post full-year pre-tax profit of £0.8m on revenue of £11.1m for the financial year just ended, followed by £3.8m on £19.8m for fiscal 2019. EPS forecasts of 0.5p, rising to 2p, give P/Es of over 200 and 50, while dividend forecasts of 0.2p, rising to 0.6p, give yields of 0.2% and 0.6%.

My colleague Paul Summers reckons the stock is ludicrously expensive due to the high P/Es. However, such is the rate of expansion that when I look to fiscal 2020, the multiple falls to below 30. The strength of the brand, the group’s rapid near-term expansion, potential for long-term growth, and resilience through the economic cycle (provided by its super-budget positioning) all lead me to rate the stock a ‘buy’.

Capital Gains

In the meantime, one of our top investing analysts has put together a free report called "A Top Growth Share From The Motley Fool", featuring a mid-cap firm enjoying strong growth that looks set to continue. To find out its name and why we like it for free, click here now!

G A Chester 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.