The Motley Fool

Should I buy IAG shares today?

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.

British Airways
Image source: British Airways

British Airways owner International Consolidated Airlines (LSE: IAG) has been a popular stock this year. On my investment platform, Hargreaves Lansdown, IAG has consistently been one of the most purchased UK shares in 2021.

Should I buy IAG shares for my own portfolio? Let’s take a look at the investment case.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

IAG shares: should I buy?

I can see why investors have been piling into IAG shares recently. For a start, IAG is a classic reopening stock. With Covid-19 vaccines being rolled out rapidly, activity in the travel industry is now picking up. There’s a considerable amount of pent-up demand to fly. After a very challenging 15 months or so, the outlook for IAG is definitely improving. City analysts currently expect IAG’s revenue to rise about 33% this year to €10.5bn.

Secondly, IAG’s share price is still well below where it was before Covid-19. Back in February last year, the share price was above 400p. Today, however, it is still under 200p. I have no doubt that the depressed share price is attracting value hunters.

The risks

Digging deeper into the investment case, however, there are a few risks that concern me.

The first is the enormous amount of uncertainty that airlines face due to the constantly-changing travel rules. The UK’s decision to move Portugal to its amber list last week is a good example of the ever-changing rules.

This environment is a nightmare for airline operators such as IAG. While there is so much uncertainty, bookings are likely to remain depressed. For IAG, it’s a concern that both Spain and the US are on the amber list as these are two of its biggest markets.

Speaking of bookings, IAG said in its recent first-quarter results that for the second quarter of the year, it is expecting capacity to be just 25% of what it was in 2019. This suggests that a full recovery is a long way off. It’s worth noting that it believes corporate bookings are likely to remain below 2019 for years.

Another concern is that fuel prices are rising. Recently, the price of Brent crude oil rose above $70. Airlines typically hedge their fuel costs so they are not exposed to rising fuel prices in the short term. Still, higher fuel costs are the last thing airlines need while they are operating at such a low capacity. Fuel costs are a large part of an airline’s expenses, meaning that higher oil prices can greatly impact profits.

Finally, I continue to have concerns about the company’s balance sheet. IAG recently advised that at the end of March, it had net debt of €11.5bn, up 18.5% from last year. Since then, it has launched an €800m convertible bond. This substantial pile of debt adds significant risk to the investment case. With air travel likely to remain depressed for at least a few years while Covid-19 is lingering, it could be hard for it to generate enough profit to pay the interest on its debt.

IAG shares: my move now

Weighing everything up, I think the risks outweigh the potential rewards here. All things considered, I think there are much better stocks I could buy today.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.