If I’d bought IAG (LSE: IAG) shares five years ago, I’d still be kicking myself. They’ve crashed more than 50% since then. I’d have lost over half my money. Luckily, I didn’t do that.
2019 would have been the worst possible time to buy the FTSE 100 stock, with the pandemic just around the corner. That hammered airline stocks across the board, as lockdowns grounded air traffic. International Consolidated Airlines Group, to use its full name, was hit harder than most.
Yet lockdown ended several years ago, and people are flying again. Finally, the IAG share price is picking up too. Now I’m wondering whether to invest in the stock before the next leg of the recovery. Assuming it comes.
A bumpy stock
IAG shares have had a turbulent time since British Airways merged with Spanish airline Iberia to from the group in January 2011. This is a tough sector to operate in. Airlines have high fixed costs, but are at the mercy of the economic cycle.
The likes of British Airways also have to battle for business against the budget carriers, which have robbed flying of its cachet. It has veered between trying to beat them on quality and join them on price.
IAG, which also owns Aer Lingus and Vueling, has had to cope with the energy shock and cost-of-living crisis too.
Despite these challenges, the share price is up 13.56% over the last year, which isn’t bad. Much of the growth is down to a recent spike. The stock is up 18.77% in the last three months. That would have turned a £10,000 investment into £11,877 today.
It’s a shame I didn’t invest in the stock in November, when I last looked at it for The Motley Fool. It had just posted a record-breaking Q3 operating profit of €1.745bn, up 43.5% as flight demand revived. CEO Luis Gallego was holding out hopes of a dividend resumption.
Time to hop on board?
Yet I resisted, sayingt: “IAG remains exposed to oil price uncertainty, economic worries and geopolitical tensions, and there’s no dividend to compensate.” So has anything happened since to change my mind?
On 29 February, it reported a doubling in full-year operating profit, from €1.24bn in 2022 to €3.5bn. Leisure demand is driving sales, with business travel sluggish. British Airways is overhauling its operations, as it battles to give travellers a reason to forsake budget rivals.
IAG still has net debt of €9.4bn, but this is down from a peak €11.6bn after Covid did its worst. One thing hasn’t changed. The IAG share price remains ridiculously cheap, trading at 3.82 times earnings. Yet this may be the type of stock that always looks cheap.
The dividend hasn’t been restored, but markets are hopeful. They anticipate a yield of 2.61% in 2024 rising to 3.79% in 2025. The airline conglomerate is pointing in the right direction, yet I won’t buy its shares today. The last few years have shown that airlines are on the frontline of every struggle out there. I think I can find smoother rides on the FTSE 100.
