easyJet (LSE: EZJ) shares have come up with a late summer surprise. The budget airline’s share price has climbed 16% since the end of July to sit at 519.2p.

The recent gains will be music to the ears of pre-Covid shareholders who have watched the share price fall 46.6% in the past five years. But, there are two key questions for me here.

Firstly, what’s driving the recent gains? And secondly, how does the company’s current valuation stack up against the market?

Ready for takeoff?

Let’s start with the recent rally. Shares in the budget airline caught my eye after rocketing higher in August. I was curious if this was the start of a change in fundamentals or something else was at play.

The company did announce a rise in Q3 pre-tax profits on 24 July, up 16% to £236m. While that is good news, it did come following a period of fairly lacklustre results.

I think another big factor here was to do with easyJet’s FTSE 100 status. The short-haul carrier was widely tipped to be pushed out of the large-cap index in the most recent reshuffle. However, it has managed to cling to the top 100.

That’s good news in terms of analyst coverage, eligibility for institutional portfolios, and inclusion in exchange-traded funds, which is good for demand.

Valuation

One thing I dug into was the company’s price-to-sales (P/S) ratio. The stock has a P/S ratio of 0.45, meaning easyJet shares do look to be on the cheaper side.

However, the share price was decimated during the pandemic and has never recovered to anywhere near that 1,270p level since.

One of the closest comparisons on the exchange is fellow budget airline, Wizz Air (LSE: WIZZ). Wizz has a £1.4bn market cap compared to easyJet’s £3.9bn having been plagued by issues in 2024.

The Wizz air share price has plummeted 45% lower since 12 June. That came after a soft quarterly trading update showed a 44% drop in operating profit to €44.6m. The airline also lowered full-year profit guidance from €500m-€600m to €350m-€450m.

Wizz shares have a P/S ratio of 0.41, so both airlines are in the same ballpark, with Wizz marginally taking the points here.

Are easyJet shares in the buy basket?

Let’s start with relative value versus the likes of Wizz Air. I think I’d give easyJet shares the nod based on a healthier balance sheet. The short-haul carrier has a net cash position of £146m and liquidity looks fairly strong versus Wizz’s net debt position.

easyJet shares are also dividend-paying which may appeal to some investors, although a 0.9% dividend yield is nothing to write home about.

In terms of the bigger picture, I’m wary of buying easyJet shares right now. While passenger numbers have been boosted, I think the precarious status in the FTSE 100 presents a short-term danger.

With the UK and Europe teetering on the edge of a recession, I’m not too bullish. I see this as one to consider should we see easyJet drop from the FTSE 100. I’d also like to see a steady upward trend in revenue and earnings while keeping that strong balance sheet.