EasyJet share price hits turbulence: is it safe to buy the dip?

EasyJet share price continued its strong downward trend this week, reaching its lowest level since April last year as the company faces a double whammy of higher fuel prices and business disruption during the ongoing war in Iran.

EZJ sank to a low of 412p, mirroring the performance of other airline stocks like IAG and Lufthansa. It remains 25% below the highest point last year.

EasyJet, a major budget airline, is facing turbulence as the war in the Middle East presents new risks. The most important risk is fuel prices, which are expected to keep rising this year as the war continues.

Brent crude oil price jumped to $85 for the first time in months, while West Texas Intermediate (WTI) soared to $77. Higher oil prices normally translate to higher jet oil prices, which affect airlines' profitability.

While airlines limit these shocks by using forward contracts, a sudden surge in prices often has a direct impact. Worse, analysts are warning that oil prices may continue soaring in the foreseeable future, potentially to $100 and above.

EasyJet is also facing a demand risk as the war continues. Fortunately for the company, most of its routes are in Europe, a continent that is not directly affected by war. Its only headwind was in its Cyprus routes, where it suspended flights because of the potential drone strikes.

Additionally, the company is facing cost challenges as inflation remains elevated in some European countries. Last year, it blamed its weakness on air traffic control and its weak winter season for missing estimates.

The most recent annual results showed that its EBIT jumped byy 18% to £703 million. Its profit before taxes rose to £665 million, with its airline and holiday business doing well.

EasyJet released its trading statement for the first quarter in January. That report revealed that it made a headline loss before tax of £93 million, higher than the £61 million it made in the previous year. It attributed the loss to its strategic investment at Milan Linate and Rome Fiumicino.

On the positive side, some analysts see value in the cheap EasyJet stock. For example, RBC reiterated its bullish outlook and placed a target of 590p. Citigroup has a target of 490, while UBS sees it soaring to 800p.

One potential catalyst for the EZJ stock price is the end of the war in the Middle East. Ideally, stocks that plunged during the war will likely rebound as investors buy the dip.

EasyJet stock price technical analysis

EZJ stock chart | Source: TradingView

The daily chart reveals that the EasyJet stock price has dropped sharply in the past few months. This retreat escalated on Monday when it formed a down-gap as the market reacted to the ongoing war.

It has now moved below the key support level at 432p, its lowest level in September last year. Fortunately, the stock has become oversold, with the Relative Strength Index moving to the oversold level of 30. Also, there are signs that it is forming a doji candlestick pattern, which resembles a + sign.

These technicals suggest that the stock will ultimately bounce back in the near term. If this happens, the initial target will be the psychological point at 450p.