The IAG (LSE: IAG) share price is nowhere near pre-pandemic levels, despite the pandemic now being a distant memory and the firm’s performance on the up.
Is now the perfect time for me to snap up some shares, or is there more for me to consider?
Let me have a closer look at the lay of the land to help me make a decision.
IAG shares ready for take off?
To be specific, the shares are down 60% from pre-pandemic levels of 423p, to current levels of 167p.
This isn’t a huge surprise, as the aviation industry ground to a halt, and was up and down for the next 18 months or so.
However, over the past year, IAG shares are up 6% from 157p, to current levels. In addition to this, at least three brokers – JP Morgan, Deutsche Bank, and RBC Capital Markets – all tip the share price to reach over 200p. As a caveat, I do understand forecasts are never a guarantee, and they could be wrong.
Plus, performance is bouncing back, which is supporting a healthier looking balance sheet and better future prospects.
The bull case vs the bear case
Diving straight into the valuation, on the surface of things, the shares look good value for money on a price-to-earnings ratio of just under four. This looks cheap when compared to a peer average group ratio of over eight.
Next, it seems the world has gotten its appetite back for travel, and IAG has capitalised. For 2023, the business reported operating profit nearly tripled from €1.3bn to €3.5bn, and profit before tax rose from €431m, to €2.7bn. Furthermore, capacity in its core segments recovered close to pre-Covid levels.
In addition to this, Q1 2024 results also made for excellent reading. Operating profit surged from €9m at this period last year, to a huge €68m! These results are very promising.
So with performance up, the shares edging up, and the business on a better financial footing after the struggles of the pandemic years, what’s the problem?
To start with, the current economic turbulence has presented its own problems. It’s perhaps the reason why the shares haven’t pushed on despite good performance of late. Firstly, a cost-of-living crisis has consumers more concerned with essentials such as energy, food, and mortgage prices, rather than booking flights. Next, fuel prices have fluctuated up and down – in part due to geopolitical issues – and this has impacted the aviation industry too. These are ongoing risks that could hurt the business.
The other issue for me is the fact that the business hasn’t paid a dividend since 2019. In an ideal world, all my investments should be providing me with some passive income.
What I’m doing now
Personally, I think the IAG share price is an opportunity. In fact, if I had some cash to spare now, I’d be willing to buy some.
My decision comes from an enticing valuation, excellent recent performance, as well as the firm’s wide coverage and market presence.
However, I must admit the bearish aspects noted do concern me. They could result in issues down the road that could dent any returns I’d hope to make.
