The IAG share price is at the highest level since the pandemic crash. Here’s what could happen next
International Consolidated Airlines Group (LSE:IAG) shares have been performing well recently. Up bang on 100% over the past year, the stock has broken through the 300p level. It’s now at the highest level since February 2020, during the midst of the pandemic-induced market crash. Here’s where I think the IAG share price goes from here.
A pandemic turnaround tale
Before I can say where it could go in the future, it’s important to note the reasons why it has done so well in the past year. One key factor has been financial results.
The business is now back to pre-pandemic levels of revenue, with 2024 looking like a record year. The boost in profitability has enabled the company to start cutting its high debt levels. It took on a lot of debt in order to survive the pandemic. This is understandable but was also a factor that put off some investors in the past couple of years.
Yet in the latest quarterly results, the net debt as of the end of September stood at €6.2bn. This is a sharp reduction from the €9.2bn a year prior.
The share price has been rallying based on higher expectations for the future. The latest results said that management “expect our strong financial performance to continue for the rest of the year”. This will be reflected in the annual report, which is due out at the end of February.
The direction from here
Despite the surge in the stock, I don’t believe that it’s overvalued. For example, the price-to-earnings (P/E) ratio is 7.26. This is below the value of 10 that I use when trying to assign a fair value to a stock. This highlights to me that it was actually very undervalued over the past couple of years, but due to the concern about it being able to recover from the pandemic, it was a high-risk option.
Now I feel it’s less risky but it still has good potential to rally this year before it becomes overvalued. In theory, let’s say the earnings per share stay the same but the share price doubles to 600p. The P/E ratio would be approximately 15. This is actually close to the FTSE 100 index average! So the scope for further appreciation is high.
Naturally, there will be a likely pause around 450p, which is where the stock was trading before the market crashed in early 2020. But considering that the business should be larger than where it was back in 2020, I don’t see this as being a wall that the price can’t push beyond.
Tempering optimism
One risk is that Asia Pacific revenue isn’t following other regions in terms of growth. Q3 saw APAC passenger unit revenue decrease by 15% versus the same quarter last year. I know this isn’t a huge market for the company but it still needs to be conscious of areas outside of Europe to avoid large issues in the future.
Overall, I think the stock could do very well this year with good momentum. I’m seriously looking at adding it to my portfolio shortly.
The post The IAG share price is at the highest level since the pandemic crash. Here’s what could happen next appeared first on The Motley Fool UK.
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More reading
- Analysts say the IAG share price could hit 500p in 2025!
- Here’s how I’ll aim for a million in 2025 and beyond buying just a few shares!
- The FTSE 100’s top performer in 2024 still looks 30% undervalued to me!
- Here’s what £20,000 invested in IAG shares at the start of 2024 would be worth today
- I was wrong about the IAG share price last year. Should I buy it in 2025?
Jon Smith 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.
