Worldwide Consolidated Airways Group (LSE:IAG) shares are up a formidable 55% over the previous yr. Nevertheless, the IAG share price remains to be down 38% over the previous 5 years, notably for the reason that inventory market crash in early 2020 from the pandemic. But with the monetary efficiency bettering, I needed to see what it might take for the inventory to make again the losses.

Lengthy story brief

Throughout the week commencing 17 February 2020, IAG shares had been buying and selling simply above 400p. But the impression of lockdowns and the following market crash meant the share price fell 70% within the following month.

This would possibly look like an excessive transfer now, however on the time buyers had been in panic mode. IAG was unable to function many flights resulting from these lockdown measures. On the identical time, it was incurring prices for having the planes stationary on the runways. Sadly, it was a recipe for catastrophe.

Although the enterprise posted a loss earlier than tax of just about €8bn for 2020, it did survive. If we quick ahead to 2024, IAG’s again in full operational mode. Importantly, the agency’s now worthwhile once more. Nevertheless, the share price is at 214p, so nonetheless a way off the 400p ranges from early 2020.

Causes to contemplate

One cause for that is the truth that borrowing ranges are greater now than in early 2020. Within the 2019 annual report, the corporate reported borrowings of €12.4bn with whole liabilities of €28.6bn. The 2024 report (utilizing 2023 figures) confirmed that borrowings had risen to €13.8bn, with liabilities additionally up to €34.4bn.

I perceive that IAG needed to tackle extra debt to make sure survival by way of the pandemic. However till it may well scale back this, I really feel the share price shall be hampered.

One other issue is that in early 2020 I’d argue that the inventory was pretty valued. Now I feel it’s undervalued. For instance, the price-to-earnings (P/E) ratio’s simply 5.08. That is nicely beneath the honest worth determine of 10 that I exploit. I feel some are nonetheless cautious about investing. But if the earnings per share stayed the identical and the share price doubled (to make the P/E ratio 10), then the share price can be again above 400p!

Persistence wanted

I do consider the IAG share price will get again to 2020 ranges. Nevertheless, I really feel it’ll take at the very least one other couple of years to attain this. The inventory isn’t going to double in worth in a single day, and even in only a few months.

The corporate must continue to grow and making certain it generates stable revenue within the meantime. It ought to then use a few of this cash to pay down money owed. A danger going ahead is that the short-haul provider area could be very aggressive. So it might lose out on worthwhile market share, which might negatively impression funds.

I’ve acquired IAG on my radar to observe in coming months as a price play I’m fascinated about.