So far in 2024, the International Consolidated Airlines (LSE: IAG) share price has risen by around 75%.
So what? I don’t have a problem with that move in itself. Big price movements like that are often warranted in the stock market, and IAG’s airline business is doing well.
But with this one there’s some potential danger ahead that I’m concerned about.
Airlines were hit big-time during the pandemic, as everyone knows. Most of the planes were grounded and holidays were cancelled.
A question of survival
The economic shock was so intense it almost dealt a finishing blow for many companies, and IAG was one of them. Goodness knows what would have happened if the pandemic had intensified and the world locked down for longer. We’d probably not have firms like Rolls-Royce Holdings and IAG around anymore.
However, medical science got on top of the virus. Just in time for IAG, Rolls-Royce and others to secure big refunding packages from shareholders and lending institutions.
Make no mistake, those extra billions were needed badly — at the time, it was a matter of survival. Without it, both firms would likely have been in big financial trouble.
But now these businesses have come roaring back. IAG, for example, began posting a profit again as early as 2022. Then there was a huge jump in earnings in 2023. The chart shows the big surge in the share price caused by the improving conditions in the business.
But the gain in normalised earnings for 2024 is forecast to be modest. City analysts reckon we’ll see an increase of around 6% and the same in 2025. So that looks like normal service has been resumed. The turnaround of the business is probably already in the rearview mirror.
Beware of over-enthusiastic stock buying
If that assessment proves to be correct, the share price ‘should’ remain more or less where it is with just a gentle ongoing elevation to reflect the ongoing growth rate from year to year. Instead though, it’s moved to a parabolic phase, and I can’t help but wonder if it’s set to overshoot.
Speculators might be thinking the stock has some way to go before it gets back to its pre-pandemic highs above 400p. But there’s potential danger ahead. Analysts predict that 2025’s net profit will be in the ballpark of 2018’s.
However, 2025’s forecast normalised earnings figure will likely be about 26% lower than 2018’s. The disagreement between net profit and earnings arises because of all the additional shares issued when IAG was raising money from the stock market.
So, if 26% is the ratio to factor in, the share price ‘should’ peak at somewhere just above 300p based on the earnings estimates for 2025. As I write on 4 December, it’s at 275p.
I reckon IAG is trading well and might be just about at fair valuation now. But if it goes much higher, the risks of a share price decline will be elevated. I may be wrong but if the current investor euphoria continues, I think we could well see a full-on share price crash in 2025! I’m not buying.
The post Up 75%! But is the IAG share price likely to crash in 2025? appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
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See the full investment case
More reading
Why the IAG share price rocketed 24% in November
Here’s the dividend forecast for IAG shares to 2026!
It’s up 70%, but the experts expect the IAG share price to climb still further
I’m not surprised the IAG share price is surging, it’s the top-rated UK stock
Anywhere under £7.30, IAG’s share price looks cheap to me
Kevin Godbold has no position in any of the shares mentioned. 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.
