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Is IAG stock a buy for me after its 16% drop?

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British Airways
Image source: British Airways

Just a few months ago, the International Consolidated Airlines Group (LSE: IAG) share was soaring as it touched a one-year high in April. But since then it has dropped 16%. 

The tide is turning

This is not the first time that the IAG share price has underwhelmed potential investors like me. While other airline stocks like Ryanair and Wizz Air have reached impressive highs, IAG’s gains have been limited since the pandemic began. It has gained only 25% in the past year. The only other airline with a comparable share price increase is easyJet.

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Yet, I think the wind is changing for IAG. It has gained 5% in the first week of July. In fact, when I started writing this article it was one of the biggest FTSE 100 gainers today, before it started falling again. This made me curious about the stock, which has lost more than half its value since the pandemic began. 

Two positive developments for the IAG share price

I went over IAG’s latest updates to see what is driving the recent increase. Turns out, there are none since I last wrote about IAG. But there have been two shifts in the broader environment that could impact it. One, stock markets continue to make gains. The FTSE 100 index is averaging at 7,130 in July so far, marginally up from June. This is also the fifth straight month of month-on-month gains. 

Two, prospects for travel are looking up. IAG runs airlines like British Airways and Iberia, which have been hamstrung so far, but could see better times as ‘Freedom Day’ nears in the UK and summer travel resumes as well. 

Other airlines’ experience bodes 

At its last update, the number of passengers carried by IAG-owned airlines in the first quarter of this year was a fraction of that at the same time last year. The number was even smaller compared to 2019. 

However, more recent updates from other airlines indicate progress on traffic. Wizz Air, for instance, expects to carry 60%-65% of its capacity this summer. Ryanair expects that traffic could be even better between July and September at 75%-80% of what is normally expected. 

Risks ahead

While IAG does not have the kind of low-cost advantage that these airlines have, I still think these numbers are encouraging. IAG might see a slower increase, but it is fair to expect that its passenger traffic can rise too. This should bode well for the IAG share price.

Of course, this might not happen if the UK government deems it still risky to travel next week, when it makes the official statement. Going by how vulnerable airline shares can be to such developments, the IAG share may just tank on any adverse news. 

My overall assessment

I think it is more likely that the IAG share price will rise. In fact, going by how low its share price is even now, it may well be among the biggest gainers in the aviation pack as travel resumes. It is a buy for me now.

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Manika Premsingh owns shares of easyJet. The Motley Fool UK has recommended Wizz Air Holdings. 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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