It is up 70%, but experts expect IAG’s share price to rise further

I International Consolidated Airlines Group (LSE: IAG) share price has gained 70% since the start of 2024. And that underscores, once again, a problem I often face in making my investment decisions.

I decided years ago to never buy an airline. It should be one of the competitive businesses that have to reduce their existing ones. One that has little differentiation, competes almost exclusively on price, and is at the mercy of many external costs that are completely outside of it.

Time to recover

But when stock prices recovered after the 2020 stock market crash, I was confident that the airline’s shares would come back strong.

Well, maybe the storm is pushing it a little, as IAG’s share price is still down 50% since the end of 2019. But over the last few years it has done better than the stocks I own.

So what happens next?

Analysts have a 12-month price target of 276p on IAG. That’s only 6 percent ahead of where he is now. But if I look at the estimate, I think it might underestimate the superpowers.

Shouting is cheap?

Looking at the price-to-earnings (P/E) ratio, this year’s top six, it is forecast to rise to 5.5 by 2026. FTSE 100 standards, they almost look too cheap to miss.

There is a total of £7bn of debt on the books. And correcting that should raise the operating P/E to about nine, down to 8.5. Maybe it’s not unreasonable after all, but it’s still pretty low compared to Footsie’s average (and ignoring other factors).

So what should you do? I have to come down to how we make our decisions, and I can think of several ways.

Buy what you know

One is to research companies carefully and understand all their ins and outs. Then we only consider buying if we believe we have a good understanding of what the next few years may hold.

It’s the kind of strategy that led billionaire investor Warren Buffett to make his own Berkshire Hathaway investing company, to beat the pants off the S&P 500 since he started in 1965.

Is ignorance bliss?

The opposite approach is to ignore the nature of the business. And just buy where the basics make it look like a good value. That’s not as easy as the more hands-off way of buying an index tracker. But it still has to mean very little head scratching.

And the FTSE 100 tracker would have returned an average of 6.8% per year over the past 20 years. So there is a lot to be said for the ‘unconscious’ angle.

Bottom line

Looking at IAG’s business model, I still think it is fraught with risk. And I don’t think it would take much bad news (be it economic or corporate news) to send flights like International Consolidated sliding again.

But for those who can put that aside and just go with the measurement metrics, I think this should be one worth considering.

It can be hard to break a lifelong habit, mind.