£5,000 invested in IAG shares 6 months ago is now worth…

IAG shares have been one of the best performers on the FTSE 100 over the past six months. Dr James Fox has several key takeaways from the price action.

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Image source: International Airlines Group

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International Consolidated Airlines Group’s (LSE:IAG) stock has doubled in value over the past six months. And boy, does that kind of move for IAG shares make me happy.

It’s been my number-one pick in the sector for some time and I’m delighted to see the stock outperform the market. So £5,000 invested in IAG six months ago would now be worth a little over £10,000.

Created with Highcharts 11.4.3International Consolidated Airlines Group PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

What’s behind the rise?

The IAG share price has surged 100.7% over six months due to a combination of strong operational performance and strategic decisions. Management’s focus on transatlantic routes is part of the reasons the company has yielded record profits, capitalising on rebounding global travel demand.

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IAG’s success in repaying debts, reinstating dividends, and announcing a €350m shareholder buyback programme has also demonstrated financial stability — which was questioned during the pandemic — and boosted investor confidence.

Moreover, the FTSE 100 stock was significantly undervalued, trading at just 4 times forward earnings. That made it very cheap compared with the likes of Ryanair, which was around 13 times. In short, improving sentiment, with investors buoyed by strong results and forecasts, has allowed IAG to start making up this valuation gap.

Still room for growth

Analysts still see room for growth in the IAG share price. The stock’s currently trading with a 10% discount to the average share price target, but the consensus target’s risen continually with the share price. That’s a good sign that analysts believe the company’s fortunes will continue to improve.

In fact, there are currently nine Buy ratings, four Outperform, and four Hold ratings. And this reflects a very positive outlook from the analyst community. This is reinforced by many institutions, including JP Morgan, suggesting IAG was indeed the best pick in the sector.

What’s more, and it’s something I believe is often overlooked, IAG offers a fairly unique degree of diversification, thanks to its business model. The British Airways, Aer Lingus, and Iberia operator has a variety of class offerings, catering to leisure and business travel as well as long- and short-haul. This means it’s hedged, to some degree, against falling demand in one of its categories.

Staying diversified

While I’m still bullish on IAG, noting among other things that the stock remains down 23% over five years despite earnings broadly recovering, airlines can be a tricky market segment. For one, it’s typically quite cyclical with historical data suggesting demand suffers during periods of economic decline. Moreover, we’ve also seen that disease outbreaks, be they epidemics or pandemics, can place airlines in existential crises. A slower UK economy, combined with additional National Insurance contributions, may also hurt earnings.

With this in mind, investors should try to remain diversified even if one stock looks like a clear multibagger. Over-concentration in a single asset can amplify risk, particularly in the face of market volatility or unforeseen company-specific challenges.

As such, with my IAG stock up close to 150%, I‘ve been thinking hard about buying more. But concentration risk within my own portfolio may prevent me from doing so.

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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.

JPMorgan Chase is an advertising partner of Motley Fool Money. James Fox has positions in International Consolidated Airlines Group. 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.

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This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

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