easyJet shares: is rejoining the FTSE 100 a buying opportunity?

The FTSE 100‘s speculated to symbolize the biggest publicly-traded firms based mostly within the UK, weighted by market-cap. And each three months, the index is reshuffled to replicate this. 

Within the newest reshuffle, easyJet (LSE:EZJ) is about to rejoin the index, with Endeavour Mining transferring into the FTSE 250 to make manner. So might this create a shopping for alternative for my portfolio?

Index reshuffle

The most recent FTSE 100 reshuffle occurs after the shut Friday (15 March). So easyJet turns into a part of the index initially of subsequent week.

Given this, it’s pure to assume demand for the airline’s shares might be unusually excessive on Monday morning. Funds that goal to trace the FTSE 100 must add the inventory to their portfolios.

Within the inventory market – as with all market – when demand surges, costs go up. So it appears cheap to count on the easyJet share value to rise initially of subsequent week. 

It would subsequently appear to be now’s a good time for traders to purchase the inventory. However I’m doubtful of this for a couple of causes. 

Warning

One I’m cautious about is information of the FTSE 100 inclusion has been public for some time. Folks eager to get forward of the curve have subsequently already had time to take action.

Given this, it appears believable to me that demand might need been elevated for a while. If I’m proper, the extra enhance Monday morning’s going to be restricted. 

Moreover, I’d count on any improve in demand to normalise fairly shortly. Even when the share value does go up, I’d view this as a short-term alternative, quite than a long-term one.

From an funding perspective, I don’t assume a lift from FTSE 100 inclusion goes to make a significant distinction. Over time, I believe the equation comes right down to how the enterprise performs.

easyJet shares

For the reason that finish of the pandemic, easyJet’s managed a robust restoration. And the agency’s low-cost mannequin ought to make it extra resilient than most in tough financial occasions.

Nonetheless, there are some important issues that put me off the inventory as a long-term funding. One is the state of the airline business, the place mounted prices are excessive.

The price of working a flight doesn’t rely a lot on the variety of passengers. Many of the prices – gasoline and staffing – are mounted no matter whether or not the airplane is 75% or 100% full.

This incentivises airways to promote their previous couple of seats at any value, because the value improve is minimal. The result’s intense competitors, making a significant aggressive benefit exhausting to return by. 

A shopping for alternative

It’s pure to assume easyJet’s inclusion within the FTSE 100 presents a shopping for alternative. However from an funding perspective, I’m not so certain that is the case.

Shopping for the inventory forward of an anticipated surge in demand for the shares seems dangerous to me. Given this, I’m trying elsewhere for shares to purchase in the mean time.