At first glance, it seems IAG (LSE: IAG) The share price is a price trap. In the last six months, the stock has fallen about 10%.
However, shares of the airline group returned 90% last year, although this number is incredibly confusing. Indeed, at this time last year, the stock was trading at a five-year low, due to concerns about the company’s liquidity.
I think a more accurate way to look at the company’s performance is to review how the share price has been since the beginning of 2020. Based on this number, it certainly seems that the price of IAG shares could be a price trap. But is that really the case?
IAG share price outlook
Generally speaking, a value trap is a company that has seen the potential for permanent disability revenue and profitability. This is not the case with the airline group.
The company, which owns British Airlines Brand, Coronavirus is fighting the epidemic title. These headwinds are slowly relaxing. The resumption of the important transatlantic travel route in November will be an important step towards a full recovery.
However, at this stage it is not clear whether the aviation industry will ever return to the level of activity in 2019. Structural factors can hinder recovery. This may include global warming and low-level concerns about business travel.
Indeed, across Europe, some airlines have already banned short-haul routes to control emissions. This will almost certainly have an impact on demand across the sector as a whole. Although IAG may not suffer like other carriers because it depends on long distance routes.
So, all in all, it does not seem that the revenue potential of the IAG has been permanently damaged at this stage.
Opportunities for growth
The price of IAG shares may not be a price trap, but is it a price opportunity? It is very difficult for me to find the answer to this important question.
It is quite clear that there will always be demand to fly, but it is less clear how quickly demand will return. It is also difficult for me to establish at this stage how this demand will be transformed into a revenue opportunity for the IAG.
Analysts believe it will take several years for the company’s profits to return to pre-epidemic levels. If they do, the stock could be a cheap opportunity at current levels. After all, it is selling at half the price of 2019.
The problem is, the company does not guarantee to hit these estimates. As such, I think it is very difficult to establish whether the price of IAG shares is a price opportunity at the current level.
That’s why I like to avoid stocks, although I don’t believe it’s a price trap.
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Rupert Hargreaves has no position on any of the shares mentioned. Motley Flower UK has no position on any of the shares mentioned. Opinions expressed in the companies mentioned in this article may differ from those of the author and therefore our official recommendations in our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.