easyJet (LSE: EZJ) shares have come up with a late summer time shock. The price range airline’s share price has climbed 16% because the finish of July to sit down at 519.2p.

The current features shall be music to the ears of pre-Covid shareholders who’ve watched the share price fall 46.6% previously 5 years. However, there are two key questions for me right here.

Firstly, what’s driving the current features? And secondly, how does the corporate’s present valuation stack up in opposition to the market?

Prepared for takeoff?

Let’s begin with the current rally. Shares within the price range airline caught my eye after rocketing increased in August. I used to be curious if this was the beginning of a change in fundamentals or one thing else was at play.

The corporate did announce an increase in Q3 pre-tax income on 24 July, up 16% to £236m. Whereas that’s excellent news, it did come following a interval of pretty lacklustre outcomes.

I feel one other massive issue right here was to do with easyJet’s FTSE 100 standing. The short-haul provider was broadly tipped to be pushed out of the large-cap index in the latest reshuffle. Nonetheless, it has managed to cling to the highest 100.

That’s excellent news when it comes to analyst protection, eligibility for institutional portfolios, and inclusion in exchange-traded funds, which is nice for demand.

Valuation

One factor I dug into was the corporate’s price-to-sales (P/S) ratio. The inventory has a P/S ratio of 0.45, which means easyJet shares do look to be on the cheaper aspect.

Nonetheless, the share price was decimated throughout the pandemic and has by no means recovered to anyplace close to that 1,270p stage since.

One of many closest comparisons on the alternate is fellow price range airline, Wizz Air (LSE: WIZZ). Wizz has a £1.4bn market cap in comparison with easyJet’s £3.9bn having been affected by points in 2024.

The Wizz air share price has plummeted 45% decrease since 12 June. That got here after a smooth quarterly buying and selling replace confirmed a 44% drop in working revenue to €44.6m. The airline additionally lowered full-year revenue steering from €500m-€600m to €350m-€450m.

Wizz shares have a P/S ratio of 0.41, so each airways are in the identical ballpark, with Wizz marginally taking the factors right here.

Are easyJet shares within the purchase basket?

Let’s begin with relative worth versus the likes of Wizz Air. I feel I’d give easyJet shares the nod based mostly on a more healthy stability sheet. The short-haul provider has a internet money place of £146m and liquidity seems pretty sturdy versus Wizz’s internet debt place.

easyJet shares are additionally dividend-paying which can enchantment to some buyers, though a 0.9% dividend yield is nothing to put in writing residence about.

By way of the larger image, I’m cautious of shopping for easyJet shares proper now. Whereas passenger numbers have been boosted, I feel the precarious standing within the FTSE 100 presents a short-term hazard.

With the UK and Europe teetering on the sting of a recession, I’m not too bullish. I see this as one to contemplate ought to we see easyJet drop from the FTSE 100. I’d additionally wish to see a gentle upward development in income and earnings whereas holding that sturdy stability sheet.