Is the current IAG share price a wonderful bargain or horrible value trap?

Trading well below pre-pandemic levels, is the IAG share price an opportunity or one to avoid for our writer?

| More on:
Aerial shot showing an aircraft shadow flying over an idyllic beach

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d aim to turn that into a £10,548 passive income each year!

Buying high-quality, high-yielding shares can generate a big passive income over time, especially if the dividends are used to buy…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

As AstraZeneca’s share price dips 4%, is it time for me to buy more?

Despite its 12-month increase, AstraZeneca’s share price appears very undervalued to me, and looks set to rise on strong growth…

Read more »

Investing Articles

FTSE 100 or S&P 500: where should I invest?

UK investors are often drawn to the high growth of US stocks. But there are pros and cons to be…

Read more »

Investing Articles

2 of the best US growth and dividend stocks to consider!

These heavyweight US stocks have been delivering tasty investor returns for decades. Here's why they could remain great picks for…

Read more »

Investing Articles

I reckon these 2 penny shares are hidden gems worth a closer look!

Some penny shares are well-known, whereas many others go under the radar, but that doesn’t necessarily mean they aren’t potentially…

Read more »

Investing Articles

Just released: our 3 best dividend-focused stocks to buy before August [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

2 FTSE 100 shares with blockbuster yields investors should consider buying

Our writer has noticed that these FTSE 100 shares offer mammoth dividend yields, and reckons investors should take a closer…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Down 36% and yielding 7.8%, is this FTSE 250 share a bargain?

Christopher Ruane looks at a FTSE 250 share with a sizeable dividend yield and a recent record of dividend growth.…

Read more »