Will the IAG share price ever return to pre-pandemic levels?

The IAG share price was one of the FTSE 100’s worst-performing stocks last year, but that doesn’t mean the business is undervalued.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The IAG (LSE: IAG) share price was the worst-performing FTSE 100 share last year. Shares in the company, which owns the British Airways brand, plunged 62% in 2020. 

The pandemic had a significant impact on the airline group. As countries around the world slammed their borders shut, the firm’s revenues evaporated.  However, now that the global vaccination programme is well underway, there’s light at the end of the tunnel for companies like IAG and its peers. 

So, could now be the time for me to buy shares in IAG ahead of a recovery? The stock certainly looks cheap after its recent declines. Unfortunately, just because a business appears cheap doesn’t mean it’ll be an excellent investment. 

What’s the future hold for the IAG share price? 

Considering everything that’s gone on over the past 12 months, I think it would be misleading to compare IAG’s future potential to its past. The airline sector has changed dramatically over the past year. 

IAG has had to raise billions of pounds from investors to keep the lights on. Simultaneously, its most aggressive competitor in the transatlantic market, the most profitable airline route in the world, has pulled out of the long-haul market. That’s a positive for the group.

However, other competitors, both in Europe and the US, have received substantial government bailouts. This has helped them stay in the game, and may change the long-term market dynamics. 

There are also large question marks hanging over the airline industry regarding its environmental impact. Companies and consumers are becoming increasingly conscious of their environmental responsibility. I think this is almost certainly going to lead to a significant change in the airline sector. 

Difficult outlook 

All of the above makes it very challenging to decide what the future holds for the IAG share price. On the one hand, a rapid economic recovery may help push the group’s earnings back to pre-pandemic levels. That’s the best-case scenario.

In the middle case, analysts reckon it’ll take at least three to five years for the airline industry to return to 2019 levels of profitability. These projections suggest a protracted recovery for the organisation.

And in the worst-case scenario, pandemic travel restrictions could continue into 2022… and beyond. It’s unclear if IAG has enough money today to survive in this situation. I think the group would almost certainly have to undertake some significant changes to right-size its business in this darker scenario. 

Considering all of the above, I think it’s going to be a struggle for the IAG share price to return to pre-pandemic levels. Therefore, I’m not interested in buying the stock. There’s just too much uncertainty surrounding the firm’s outlook. And there’s no guarantee it’ll ever be able to recover from the past year’s shocks. 


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How risky is switching from cash savings to a Stocks and Shares ISA?

The UK government is making moves to encourage cash savers to consider investing via Stocks and Shares ISAs. But what…

Read more »

Friends and sisters exploring the outdoors together in Cornwall. They are standing with their arms around each other at the coast.
Investing Articles

4,985 shares of this FTSE dividend star pay an income equal to the State Pension!

Zaven Boyrazian calculates how many shares investors would have to buy to generate enough income to match the UK State…

Read more »

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

£500 buys me 407 shares in this 8.2%-yielding income stock!

Got a small lump sum? Zaven Boyrazian explores one underappreciated income stock offering an enormous yield that could be set…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Up 23% this year, is it too late to buy shares in this FTSE 100 compounder?

Having missed Diploma shares at £36 back in April, is a strong trading update with higher guidance a good enough…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

Does this ex-penny stock have the potential to almost double?

This under-the-radar mining stock has doubled in the last 12 months, lifting it out of penny stock territory. But could…

Read more »

A mature adult sitting by a fireplace in a living room at home. She is wearing a yellow cardigan and spectacles.
Investing Articles

£5k in savings? Here’s how that can unlock a £255 monthly second income

Ever wondered how to turn a lump sum of savings into a chunky second income? Zaven Boyrazian explains a simple…

Read more »

British pound data
Investing Articles

Get ready for a US stock market crash?

Experts are waving the red flag on the US stock market and economy, warning of an impending crash. Should investors…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

How I’m positioning my SIPP for the AI revolution

Artificial intelligence is likely to disrupt every industry. Edward Sheldon is hoping to capitalise on the growth of AI through…

Read more »