The IAG (LSE: IAG) share price has plunged a staggering 70% in 2020. Investor sentiment towards the company crumbled after the coronavirus crisis grounded the airline group’s fleet.
Following these declines, value-seeking investors might be attracted to the stock due to its low price level. But the outlook for the business is far from clear.
Is the IAG share price cheap?
While the IAG share price might look like a bargain after recent declines, the outlook for the business is far from clear.
The company is facing potentially years of lower demand, and its balance sheet is straining under pressure.
What’s more, the company’s relations with staff have deteriorated rapidly over the past few months. Management’s actions to try and control costs have caused friction across the business. Recent calls for a strike among employees show just how badly relations have deteriorated since the beginning of 2020.
On top of staffing issues, the state of the group’s balance sheet is weighing on the IAG share price. The business has taken drastic action to control costs, but this isn’t going to be enough. Management has asked investors for €2.8bn via a rights issue to help the business through the crisis.
In addition to the above, the coronavirus crisis is impacting IAG’s operations. Until the virus is brought under control, it seems unlikely that the company will see the demand for its flights return to 2019 levels. Management is not expecting demand to return to 2019 levels until 2023 at the earliest.
Considering all of the above, it’s clear that the IAG share price faces a lot of uncertainty in the near term. More lockdowns could force the firm to ground its fleet once again. A strike would have the same impact, and if the airlines group is forced to cancel more flights, its balance sheet issues may become even more pressing.
That said, IAG owns some of the largest airlines in the world. It also controls critical flight routes and landing slots in the UK. These give the business a strong competitive advantage. They may allow it to make a strong recovery from its recent setbacks over the long term.
As such, risk-tolerant, long-term investors may benefit from buying into the IAG share price while it trades at low levels today. The business may face future uncertainty in the near term, and the situation could become worse before it gets better. Still, IAG should be able to raise enough money from the City to survive the crisis, and its competitive advantages will provide a strong base for growth over the long term.
Indeed, the company has been able to use these advantages to pull itself up from falls in the past. There’s no reason why management cannot use the same playbook to instigate a recovery this time around. Even though the crisis has caused huge problems for IAG, it is better positioned than most airlines to stage a recovery over the next five to 10 years.
The post Is the IAG share price a bargain after crashing 70%? appeared first on The Motley Fool UK.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2020