While some airline stocks have more than overcome the pandemic, others are still struggling. One of them is the FTSE 100 aviation stock International Consolidated Airlines Group (LSE: IAG). It is down by 28% in the past three months alone.
With its share price at a fraction of its pre-pandemic levels, I think it looks like an opportunity to buy, even though it also looks like a risky bet. Clearly, in this case, I will buy the stock only if the potential rewards outweigh the risk of further capital losses.
The downside
As far as the risks go, there is little doubt that travel is still far from normal. So, it will be some time before IAG can get its financials in order. I am concerned about the rise in its debt levels over the past year. Moreover, it appears that we are not yet out of the woods with respect to the pandemic either. With Covid-19 fatalities on the rise despite the vaccinations, there is a possibility of yet another lockdown. Also, travel can slow down after summers as well. Increased fuel prices are another downer.
The positives for the IAG stock
Yet, I believe that there is upside to the stock as well. Even with persistent uncertainties, we have come a long way from the start of the pandemic. I reckon that the recovery in travel demand may be postponed, but it is unlikely to be stalled for a long time. Once it picks up, the best recovery plays will be the still beaten down stocks. And that includes IAG in my opinion.
Moreover, while it is true that its share price has crashed in the past three months, a longer-term perspective reveals otherwise. In the last one year, it has still increased more than 12%, even after the fall. In fact, from the lows of around 90p just before the stock market rally began in November last year to April this year, the IAG share price had run up a huge 140%. I am not sure if it will rise as fast anytime in the near future again. But it does reflect the potential for the stock, which is trading way below its pre-pandemic levels.
I am also encouraged by its pre-pandemic performance, which showed consistent rise in revenues over the years. It was also a profitable company. IAG reported a sharp revenue increase in its previous financial update too. The British Airways owner also expected better passenger number in the third quarter of this year in its last update.
My takeaway
Based on these arguments and my long-term view of the aviation business, I bought IAG shares a while ago. But I can also understand investor hesitation in buying it right now as uncertainty grows again. It does not help that the stock markets are having a bit of a wobble as well. I do think, however, that for the patient investor in me it is a good stock to buy.
