Every so often, the stock market gives investors a sharp reminder of how fragile confidence can be. Whether sparked by interest rate shocks, geopolitical tensions, or a sudden banking wobble, a sharp downturn tends to make an investor question everything.
So what will happen to my portfolio if the market crashes tomorrow? To answer that, I often look back at past examples, and few illustrate it better than International Consolidated Airlines Group (LSE: IAG).
The last time disaster struck
International Consolidated Airlines Group owns familiar names like British Airways, Iberia and Vueling. Before Covid, the stock sat comfortably around 600p, reflecting steady growth and healthy global travel demand.
Then the pandemic hit. Within weeks, planes were grounded, revenues dried up and the group’s share price nosedived by nearly 80%, falling to under 100p. For investors who sold in panic, it was a painful lesson. Those who held on however, would eventually see that patience rewarded.
How it’s bounced back
In the five years since that collapse, the group’s recovered roughly 70%, now changing hands near 370p. It’s not quite back to pre-pandemic highs but it highlights how market crashes rarely last forever. The strongest companies find a way through.
In fact, even after this recent surge, the company still looks undervalued to me. It trades on a price-to-earnings (P/E) ratio of just 8.43 and a P/E growth (PEG) ratio of 0.87 — suggesting earnings are expected to keep growing faster than the price implies.
The risk side of the equation
Of course, investing isn’t without worry. International Consolidated Airlines still carries a hefty £14.34bn debt load, nearly three times its equity. That’s a red flag — though for now, cash flows are strong enough to handle repayments. It’s also important to note that airlines are exposed to geopolitical shocks that can push oil prices higher, as well as the ever-present risk of environmental disasters that could once again ground air travel.
But reassuringly, margins are improving and the group has returned to paying dividends, currently yielding around 2%. Even more striking is the return on equity (ROE) of 58%, which tells me management’s generating excellent returns on shareholder money despite the debt.
What will I do in a downturn?
If there were another sharp downturn, there’s a good chance share prices would get walloped again. Airlines and luxury goods tend to be among the first to feel the pinch when confidence or spending drops. But if the business fundamentals stay intact — and the world keeps flying — history suggests patient investors will eventually be rewarded.
That thinking can be applied to other industries and analysis is required to see if the changed circumstances that caused the crash have undermined the long-term prospects for any holdings.
But overall, I aim to avoid selling solid companies in a panic. A stock market crash doesn’t destroy real businesses overnight – it just changes what people are willing to pay for a while. By focusing on balance sheets, cash flows and long-term demand, I can feel more comfortable riding out the noise.
International Airlines Group’s a great reminder that crashes come and go, but resilient companies can bounce back. As long as I stay diversified and keep a level head, I like my chances – crash or no crash.
