Why are investors flooding into IAG shares this week?
IAG (LSE: IAG) shares have been the hottest property on AJ Bell over the last week. According to data from the broker’s platform, the stock in International Consolidated Airlines Group (to give it its full name) was bought more than any other by account holders. The number of buys over the seven-day period for the British Airways owner accounted for more than one in every 20 purchases made!
So what’s going on here? Why are so many investors snapping up these shares?
Cheap
The first thing to point out here is that the share price has stayed roughly level over the timeframe. This means the answer isn’t investors jumping on the bandwagon of a soaring share price. It also means that (probably unsurprisingly) the investors on the AJ Bell platform aren’t numerous enough to affect the share price of a £20bn company.
One piece of news that might be enticing investors is the possible merger with TAP Air Portugal. IAG already holds a collection of national air carriers including British Airways, Iberia and Aer Lingus. The addition of the Portuguese airline could provide welcome expansion, especially in Latin America.
Another possible candidate is shareholder returns. The company is nearing the completion of a â¬1bn share buyback scheme and the CEO has hinted more could be on the way early next year. A company buying its own shares and taking them off the market effects upward pressure on a share price.
Is there anything else that could be attracting investors here then? One obvious answer is how darn cheap it looks. The stock trades at one of the cheapest valuations on the FTSE 100. A price-to-earnings (P/E) ratio of 7.44 looks like a bargain compared to the Footsie average of 19, or so. In other words, the business is making a lot of money relative to how much a share costs.
Temporary low?
Cheap shares are hardly uncommon. Single-digit P/E ratios are expected in declining industries like oil or tobacco. Do airlines have similarly dismal long-term prospects? I’d suggest not. This could mean the current IAG share price is at a temporary low where investors can fill up on cheap shares.
Are there risks? Of course. Fuel and wage costs are both plaguing the industry of late. The fragility of international travel (as we saw in the pandemic) is likely going some way to depressing the valuation too. These fears could be well-founded and mean that whatever cheapness is on offer here is a little too good to be true.
One advantage to IAG is that it operates on higher price levels from the low-cost carriers which might suffer more with rising costs. Throw in its popular transatlantic routes and a larger focus on business travel and you’ve got an airline that is doing a lot better than others like easyJet. I’d say it’s one to consider.
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John Fieldsend has positions in easyJet Plc. The Motley Fool UK has recommended Aj Bell Plc. 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.
