After printing a 52-week high of around 218 p in April of this year, the IAG (LSE: IAG) share price has been sliding. While the stock is up 23% over the past 12 months, it is down 17% since the beginning of April.
This price action is particularly interesting because, over the same period, the outlook for the company has improved.
As such, it is beginning to appear as if there is an opportunity here for risk-tolerant investors.
IAG share price opportunity
Trying to pull apart the outlook for a complex company like IAG is not particularly easy. The firm, which owns airline brands across Europe, including British Airways, is being pushed and pulled in different directions.
For example, while passenger capacity was only at 19.6% of 2019 levels in the first quarter of 2021, the group operated a record number of cargo-only flights. As a result, while passenger revenue was down 88%, cargo revenue for the period increased 42%.
Meanwhile, costs dropped dramatically. Overall, total spending was down 68% compared to the same period in 2020, leading to a much improved operating loss of €1.1bn compared to 2020’s €1.9bn.
In the second quarter of the year, the company planned to operate around 25% of its 2019 passenger capacity. This implies the group’s operating performance will be much the same for that quarter of 2021 as it was for the first.
But this means the company is on course to report another billion euro loss for Q2. I think this shows the scale of the challenge and level of uncertainty surrounding the IAG share price.
The recovery in the airline industry is lagging far behind the rest of the economy. Nevertheless, there are green shoots on the horizon.
Earlier this month, British Airways announced that it would participate in a “proving trial” to prove that it is “possible to quickly and easily verify those arriving into the UK who are fully vaccinated.” This should help the government build travel corridors with other nations.
What’s more, the government has just said fully vaccinated travellers will not need to self-isolate on their return to the UK from amber list countries as of 19 July.
This could be yet another shot in the arm for IAG and its peers.
Valuation challenge
Despite these developments, placing a value on the IAG share price remains difficult.
The problem is, the company is still losing money. It is challenging to value a business that is bleeding cash. At the same time, there is no guarantee if or when the enterprise will return to profitability. It could be in the last quarter of 2021 or not until 2023. It is just impossible to say at this stage.
And until the company does return to profit, I think the IAG share price will continue to float around without direction. That means it could fall or even rise from current levels.
Therefore, I am not going to be buying shares in the airline group today. I think there is just far too much uncertainty surrounding the outlook for the business.
