Back in October, the IAG (LSE: IAG) share price languished at around 95p. Had I taken the opportunity to buy stock in the FTSE 100 airline back then, I’d have more than doubled my money by now!
But I don’t regret my decision to steer clear. At the time, IAG was under the cosh as a result of ongoing travel restrictions. The more deadly second wave of the coronavirus was also about to hit the UK, ushering in a second national lockdown.
Buying shares when the outlook is bleak is one thing. Buying shares in a company when the outlook is almost completely unknown is another thing entirely.
Since then, of course, we’ve had news on successful vaccines and the gradual unlocking of economies. So, where does the IAG share price go from here? And will I finally be buying?
IAG share price: only way is up?
There are a few reasons to suspect the only way is up. Perhaps more pertinent to IAG was last weekend’s statement from European Commission president, Ursula von der Leyen. She said that flights from the US to Europe may be allowed to happen in the summer. The only caveat is that all passengers must have received their vaccinations.
This is clearly encouraging news for trans-Atlantic carriers like the British Airways owner. Should Boris Johnson announce something similar in the lead-up to Joe Biden’s visit to the UK in June, the IAG share price could jump.
From a more general perspective, the reaction to the reopening of high streets across the UK also demonstrated how keen people are to get out of their homes and spend. Sure, a holiday abroad isn’t the same as taking a trip to the shops.
However, it does suggest that the psychological wounds from the coronavirus may not take as long to heal as first thought. This optimism may also continue to push more cautious investors back towards the airline sector.
Reasons to be cautious
Of course, at the moment, we can only speculate. Markets that are still skittish about the coronavirus more than a year after crashing is evidence that nothing can be taken for granted.
I also can’t get away from the view that airlines are notoriously poor returns due to the huge amounts of capital required to keep planes maintained and in the air. Take into account the fierce competition (a busted airline is quickly replaced) and it’s not hard to see why top fund managers such as Terry Smith refuse to go near stocks like IAG.
I’d also need to be comfortable with the lack of dividends. Even if these were to be reinstated soon (and I don’t think they will be), there’s likely to start from a very low level. Why bother when there are far better income-generating stocks in the FTSE 100?
The IAG share price is now close to the ‘high’ seen in June 2020.
Whether this momentum continues in May is tricky to say. On reflection, I still won’t be joining the queue to buy. As a long-term investor rather than a trader, I’m led by a company’s fundamentals. And I just don’t like all that debt on IAG’s balance sheet.
The rally in the IAG share price may be far from over, but I’m keeping my feet on the ground.
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Paul Summers 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.