Sector Screener: should you buy easyJet and IHG shares now?

An easyJet plane at Barcelona airport, Spain. Photo: Joan Valls/Urbanandsport/NurPhoto via Getty Images.

Investors in travel and leisure stocks have experienced a roller-coaster ride over recent weeks. Indeed, the sector slumped by as much as 17% within three weeks of the start of war in Iran. Since then, it has surged 16% higher and now trades within reach of its level from the end of February.

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Of course, the sector’s performance has been heavily impacted by conflict in the Middle East due in part to its historical reliance on discretionary, as opposed to staple, spending. With energy prices sharply higher, it seems likely that inflation will rise to at least some extent in the near term. This could put additional pressure on household budgets, as well as prompt a tighter monetary policy that negatively affects wage growth.

In combination, this could mean consumer spending is squeezed. Given that discretionary spending is typically easier for consumers to cut than staple spending, the near-term outlook for the travel and leisure sector is highly uncertain.

Furthermore, other factors such as flight restrictions and a jump in the cost of jet fuel, as well as its potential lack of supply, could squeeze the financial performance of the sector over the coming months. In tandem with what is likely to remain a highly fluid geopolitical situation in the Middle East, it would be wholly unsurprising for sector incumbents to experience further heightened share price volatility.

Long-term prospects

On a longer-term view, however, travel and leisure stocks could offer investment potential. In some cases, their share prices have fallen by a significantly greater amount than the wider market over recent weeks. This means they may offer a wide margin of safety that provides scope for an upward rerating, and subsequent capital gains, as well as a degree of share price support in the meantime.

In addition, some sector members have solid competitive positions that could provide scope for strong profit growth in the long run. This, for example, could take the form of a hotel chain with a loyal customer base that provides pricing power and which proves useful during a potential period of high inflation. Or it may be an airline that has lower costs than rivals or a significant market share that proves beneficial as the world economy’s performance ultimately reverts to its long-term average.

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Clearly, many investors may presently find it difficult to envision an ebullient outlook for the world economy given ongoing geopolitical events. However, it has always previously recovered from even its most challenging periods to return to positive growth. Given the inherent cyclicality of travel and leisure firms, buying them amid uncertain operating conditions could prove to be a shrewd long-term move.

Source ShareScope. Data at 21 April 2026. Past performance is not a guide to future performance.

Financial resilience

In the meantime, travel and leisure firms must successfully overcome near-term economic and geopolitical challenges. In many cases, though, sector incumbents have solid financial positions, as demonstrated through generous interest coverage ratios and significant liquidity. That means they are well placed to ultimately benefit from improved trading conditions.

In some cases, moreover, the sales profiles of travel and leisure firms may be more resilient than many investors realise. Although travel and leisure spending is undoubtedly discretionary rather than staple, many consumers may choose to cut back on other goods and services before they give up their annual holiday, for example.

This could mean that several travel and leisure firms are more adept at overcoming present challenges than their recent share price performance and market valuations suggest. And with some sector members being value focused, in terms of having a budget offering, they could be in a strong position to capitalise on an uncertain period for consumers over the coming months.

Source ShareScope. Data at 21 April 2026. Past performance is not a guide to future performance.

Low valuation

FTSE 250-listed easyJet (LSE:EZJ)’s no-frills offering could prove popular should consumers seek to trade down to lower priced travel options.

Furthermore, its growing package holidays division, where customer numbers rose by 22% in the first half of the current year, provides a degree of diversification and ballast to its sales outlook. After all, package holidays are typically more resilient to economic uncertainty than direct airline bookings, given their perceived superior value for money among consumers.

The company’s shares also appear to offer good value for money. They have fallen by 17% since the end of February and now trade on an earnings multiple of just 5.8. This is half the FTSE 250 index’s price/earnings (PE) ratio of 11.6. And while the company’s earnings are forecast to decline by 17% in the current year due in part to expectations of a tough operating environment, their forward earnings multiple of 10.4 indicates that investors have priced this in.

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Risk/reward ratio

easyJet’s financial position, moreover, suggests it is well placed to overcome a potentially challenging period. At the end of the first half of its current year, for example, it had total liquidity of £4.7 billion. Its net interest costs, meanwhile, were covered 18.5 times by operating profits in its latest financial year. This indicates it could cope with a substantial fall in profitability before struggling to service its borrowings.

Clearly, the company’s share price and financial performance could come under severe pressure if, for example, conflict in the Middle East causes a spike in inflation, a tighter monetary policy and subsequent economic challenges. And with energy prices and their supply both subject to high levels of uncertainty at present, investors in easyJet must accept that share price volatility is likely to be elevated over the coming months.

Indeed, the firm’s share price came under renewed pressure recently following the release of a trading update for the first half of the current year. It stated that the company expects losses for the six-month period to be greater than previous consensus forecasts. But with a wide margin of safety, a solid financial position and a sound business model, the stock appears to offer a favourable risk/reward opportunity on a long-term view.

Growth potential

While easyJet’s share price has failed to recover from its recent decline during the Iran war, sector peer InterContinental Hotels Group (LSE:IHG) now trades 6% higher than it did at the end of February. This means that the owner of hotel brands such as Six Senses and Holiday Inn now has a forward PE ratio of 25.8 compared with 18.4 for the FTSE 100 index.

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Clearly, there are far cheaper options than IHG in the travel and leisure sector. However, the company’s fundamentals suggest it could still offer relatively good value for money.

For example, it is currently forecast to post a 13% annualised rise in earnings per share (EPS) over the next two financial years. Its EPS figure is set to be boosted by a share buyback programme amounting to $950 million (£702 million), which is due to be completed in the current calendar year.

The company’s pipeline of rooms, which at 340,000 amounts to roughly a third of its total estate, could act as a further catalyst on its financial performance. And with a strong competitive position, notably via a relatively loyal customer base, the firm has pricing power that could prove useful should inflation spike.

Heightened volatility

With a net interest coverage ratio of 7.8, IHG appears to have a solid financial position amid elevated geopolitical and economic risks. Even though its shares have recovered following their initial fall in early March, they are likely to remain highly volatile – particularly if the company’s trading conditions deteriorate.

However, with solid fundamentals and long-term growth potential, the stock could offer investment appeal over a multi-year time frame.

Robert Stephens is a freelance contributor and not a direct employee of interactive investor.