My favourite value stock, International Consolidated Airlines Group (LSE: IAG), has flown faster than anything else in my Self-Invested Personal Pension (SIPP) lately, climbing 50% since I bought it six months ago.
Long-term investors have even more to smile about, with the shares up 87% over 12 months and 300% over five years.
International Consolidated Airlines Group, also known as IAG, took an absolute beating during the pandemic as global lockdowns grounded fleets and wiped out revenues. Fixed costs kept piling up which pushed its finances to the brink.
IAG shares have slipped
As the world started flying again, the shares have taken wing but still look cheap, trading on a price-to-earnings ratio of just 8.3.
Yet today (7 November), the carrier was brought down to earth by the reaction to its third-quarter results this morning . Operating profit rose from €2.01bn to €2.05bn, but analysts were hoping for €2.19bn. Pre-tax profit dipped 2.1% to €1.87bn. The IAG share price fell more than 7%.
Time to panic? Absolutely not. Making fast decisions on results day is always chancy. If a stock surges, it’s tempting to buy in as excitement builds, only to see the price slip as traders bank quick profits. If it slumps, selling can be just as dangerous because bargain hunters may appear and reverse the fall.
I couldn’t make a sudden move even if I wanted to. We have strict rules at The Motley Fool and I’m not allowed to buy or sell any stock within two full trading days of writing about it. That gives me the luxury of time but one decision is already made. I’m not selling.
I only ever buy shares with a minimum five-year view to give the investment case time to play out and allow compounding to work its quiet magic. Quickfire trading is costly and risky. The odds are rarely in the investor’s favour.
What the numbers say
The US economy’s showing signs of strain which is hitting demand for transatlantic travel. Tariffs may be adding pressure too. Yet chief executive Luis Gallego insists that demand for travel “remains strong” and IAG remains on track to deliver another year of rising revenues, profit and shareholder returns. It’s also completed a €1bn share buyback and plans to update shareholders on further returns in February.
Investors who want exposure to global travel could consider buying to take advantage of today’s dip. A word of warning though. The P/E looks modest but I’m not expecting a full return to the FTSE 100 average of 18, because airlines are risky, cyclical businesses. They will always face risks, from wars to fuel price shocks to recessions.
Anybody who does take advantage of the share price dip should keep their eyes on the distant horizon. Short-term turbulence is always likely. That comes when investing in equities but, over time, the rewards are usually well worth it.
