Since the beginning of the year, the IAG (LSE:IAG) share price has risen 12.8%. But it’s not been simple, with some fairly erratic movements.
I’m already a shareholder in IAG, and I’ve held the stock since the end of the pandemic. But because of the impact of Russia’s war on Ukraine, it’s not been an overly successful investment.
I’m up around 12%. So, the question is, should I buy more, hold, or sell? Let’s take a closer look.
What’s behind the volatility?
Analysts weren’t expecting much from IAG, which operates brands like British Airways and Iberia. There were concerns that the company’s hedging strategy, while effective, would leave it vulnerable to a rise in the price of aviation fuel.
That concern around fuel still exists. IAG shares dropped almost 15% following Iran’s strike on Israel and did not recover until Israel’s retaliation was deemed to have concluded matters. Conflict in the oil-rich Middle East tends to push up fuel prices.
However, IAG surprised investors in February with some very strong results and solid underlying data. As of 29 February, the airline operator was 92% booked for Q1, and 62% booked for H2 — ahead of its position a previous year.
This positive set of results was complemented by a host of brokerage upgrades. Several institutions, including RBC and JPMorgansuggested that IAG could see some positive catalysts in the coming months.
“IAG now generate the second highest margins (behind Ryanair), but by some metrics trade on the cheapest valuation in our airline coverage,” RBC said in a note. That’s a big positive.
Not yet. 1 for me
IAG is cheaper than easyJet and Ryanair by some distance when we use conventional metrics. IAG is trading around 4.6 times forward earnings, while easyJet trades at 8.1 times and Ryanair at 15.2 times. Even taking into account IAG’s debt levels, it looks cheap, with an EV-to-EBITDA ratio of 3.38 — Ryanair is at 7.2 times.
Furthermore, as noted above, IAG has the second highest margins in the sector, second only to Ryanair. However, I’m very wary about investing in Ryanair. It’s clearly very expensive, and it operates a fleet which is 98% Boeing 737 platforms.
Story continues
Ryanair’s single platform is good for lowering costs, but Boeing has been in the news for all the wrong reasons recently, and it’s impacting customers. Ryanair recently said it will receive 10 fewer (40 vs 50) Boeing 737s before peak season in Q3. I don’t think this is the end of Ryanair’s issues with Boeing.
The bottom line
IAG shares have demonstrated some volatility in recent months, and they’re still going to rise and fall on the back of news relating to fuel prices.
Regardless, I still think it’s the best option in the sector right now. It offers a diverse portfolio of routes and passenger classes, in addition to being a cheaper investment opportunity than the rest of the sector.
With IAG and Rolls-Royce, I’m already quite exposed to civil aviation. But I’m considering topping up.
The post What’s going on the IAG share price? It’s so volatile! appeared first on The Motley Fool UK.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Fox has positions in International Consolidated Airlines Group and Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce 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.
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