The International Consolidated Airlines Group (LSE:IAG) share price is up 22% since the start of the year. And the market seems bullish on the outlook for the stock.
The average analyst price target for the stock is £2.11 – around 35% higher than its current price. But is this a realistic expectation, or should investors be wary?
Light at the end of the tunnel
If I’d invested £1,000 in IAG shares a decade ago, the market value of my shares today would be around £612. That means the stock has been a terrible long-term investment.
Someone who invested at the start of 2023, though, would have had quite a different experience. A £1,000 investment in IAG shares made at the start of January would have a market value of £1,214 today.
I certainly wouldn’t bet against the momentum behind the stock pushing the share price to £2.11 in 2024. There are definitely reasons to think next year could be a good one for the company.
Inflation seems to be coming under control, which should help the company’s margins. And if holding interest rates steady is enough to keep the UK out of a recession, travel demand might be strong for another year.
Both of these are positive forces for IAG that could help the company’s share price over the next 12 months. But I think investors with a long-term outlook ought to be a bit more wary.
Long-term investing
As an investor, I’m looking to buy shares in companies where the underlying business can generate a return for a long time. And with earnings per share (EPS) going from 5p in 2013 to… 5p in 2022, IAG doesn’t seem inspiring.
Now, to say that’s an uncharitable summary is to put it mildly – the company’s EPS reached £1.24 in 2018 and it would be entirely unfair to criticise the company just because it got hit hard during the pandemic.
My reasons for avoiding the stock don’t just reduce to this, though. As I see it, the airline industry is highly cyclical and IAG’s management has shown a worrying tendency to do the wrong thing at the wrong time.
Share buybacks are a good example. Between 2013 and 2018, the company used its excess cash to repurchase stock when the the price was high, before issuing shares in 2020 when the IAG share price was much lower.
Buying shares at high prices before selling them at low ones has been value destructive for IAG shareholders. And that makes me extremely concerned about investing in the business going forward.
Should I buy IAG shares?
The IAG share price might hit £2.11 next year. If it does, anyone who bought the stock at today’s prices will be well rewarded – and I hope it happens for them.
I think, though, that the best way to make money through the stock market is by investing in businesses that can do well. Mis-timed share buybacks over the last 10 years mean I’m not convinced by IAG in this context.
Both the stock and the underlying business look prone to significant volatility. For someone looking to buy the stock and sell it in the near future, this might be great, but it’s not one for me.
