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It’s shaping up to be a bumpy summer for International Consolidated Airlines Group (LSE: IAG) shares. But some investors may ask: so what’s new?
Life has been turbulent for the FTSE 100 stock ever since the pandemic, which grounded its fleets and almost buried the business. Yet when flying eventually recovered, the IAG share price flew to the stars.
It suffered another period of bumpiness after Donald Trump unleashed his tariffs last year, which menaced British Airways’ lucrative transatlantic routes. When Trump eased tariffs, the shares soared again.
How much volatility can you take?
Inevitably, it’s on the front line of the Iran conflict too. British Airways quickly cancelled flights to Abu Dhabi, Amman, Bahrain, Dubai and Tel Aviv. Whenever Trump announces good news in the Gulf, the FTSE 100 rallies, and IAG is among the biggest risers. That was the case yesterday (6 May), when its shares jumped 6.9%. Yet on bad days, it numbers among the biggest fallers. Why would anybody buy a stock like this?
For two key reasons. First, overall, the direction of travel has been upwards. The IAG share price is up 35% in the last year, and 165% over three. Second, the shares still look astonishing value, with a trailing price-to-earnings (P/E) ratio of just 6.3.
I can see why some investors wouldn’t go near IAG. The airline sector is on the front line of every shock. Wars, oil price swings, natural disasters, recessions, terror, tariffs… almost every major threat you can think of threatens their revenues and profits. And don’t forget French air traffic controllers.
IAG runs a fleet of more than 600 aircraft, which carry more than 122m people to 285 destinations across 93 countries. An awful lot can go wrong. Profit margins of 15.1% offer some cushion, but it’s not that plump.
Can this stock get even cheaper?
With cyclical consumer stocks, I like to buy when they’re down rather than up. So could we be handed a big buying opportunity this summer? It’s more than possible. The full economic impact of the Iran conflict hasn’t hit home yet. That could change very quickly, if oil starts running out.
Jet fuel prices have already doubled, and airlines are starting to cancel flights, dropping 13,000 so far this month. More could follow, depends on events in the Strait of Hormuz. British Airways, Iberia and IAG’s budget carriers Aer Lingus and Vueling could all take a big hit. Let’s hope tensions ease and all goes well. But if they don’t, the IAG share price could suffer. That P/E could fall even lower. Just 18 months ago, it was below four. It could happen again, which would mean a very cheap share indeed. But investors will need strong stomachs to take advantage. And should only consider buying with a long-term view.
IAG is a binary bet right now. If we get a peace deal, its shares may shoot up instead. I hold IAG in my SIPP and I’m not selling either way. But if it does slump in the months ahead, I’ll be seriously tempted to buy more. So far, buying IAG on the dips has been a winning strategy for me.
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