At first glance, it looks as if the IAG (LSE: IAG) share price is a value trap. Over the past six months, the stock’s fallen nearly 10%.
However, shares in the airline group have returned 90% over the past year, although this figure’s incredibly misleading. Indeed, this time last year, the stock was trading at a five-year low, due to concerns about the organisation’s liquidity.
I think a more accurate way of looking at the company’s performance is to review how the share price has performed since the beginning of 2020. From this perspective, the stock’s declined nearly 60%. Based on these numbers, it certainly seems as if the IAG share price could be a value trap. But is that really the case?
IAG share price outlook
Broadly speaking, a value trap is a company that has seen its potential to earn revenues and profits permanently impaired. That doesn’t appear to be the case with the airline group.
The company, which owns the British Airways brand, is struggling against the headwinds of the coronavirus pandemic. These headwinds are slowly easing. The reopening of the crucial transatlantic travel route in November will be a key step towards a full recovery.
Still, it’s not clear at this stage if the aviation industry will ever return to 2019 levels of activity. Structural factors may hold back the recovery. These could include concerns around global warming and lower levels of business travel.
Indeed, across Europe, some airlines have already been banned from flying short-haul routes to try and control emissions. This will almost certainly hit demand across the sector overall. Although IAG may not suffer as much as other carriers as it relies heavily on long-haul routes.
So, all in all, it doesn’t look as if IAG’s revenue potential has been permanently impaired at this stage.
The IAG share price might not be a value trap, but is it a value opportunity? It’s pretty hard for me to find an answer to this crucial question.
It’s pretty clear there’ll always be a demand for flying, but it’s less clear how quickly the demand will return. It’s also difficult for me to establish at this stage how this demand will translate into a revenue opportunity for IAG.
Analysts believe it will take several years before the company’s profits return to pre-pandemic levels. If they do, the stock could be a cheap opportunity at current levels. After all, it’s selling at around half its 2019 value.
The problem is, the company isn’t guaranteed to hit these projections. As such, I think it’s too difficult to establish whether or not the IAG share price is a value opportunity at current levels.
That’s why I’d continue to avoid the stock, even though I don’t believe it’s a value trap.
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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.