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Over the past year, the International Consolidated Airlines Group (LSE:IAG) share price has jumped 36%. However, last week the FTSE 100 share was one of the top stocks that retail investors using Hargreaves Lansdown sold. Given that it wasn’t in the list of top purchases, it indicates to me a clear message. Here’s what I think’s happening.
Banking some profit
The rally over the past year has pushed the stock higher, breaking 200p for the first time since spring 2021. So even before I consider anything company specific, I can see one reason for the interest in selling.
A lot of investors (me included) will have a target price for a particular stock. Especially when it comes to a value stock, I’ll have an idea of where I think the fair value should be, which is where I’d consider starting to book some profit.
During the pandemic, the airline operator was hit hard. However, it did look cheap, especially when it fell below 100p in 2022. So for some that bought at this level, 200p might have been flagged as a price where taking some risk off the table made sense.
Don’t get me wrong, I’m still all for investing for decades to come. But I completely understand why some investors would have wanted to trim their exposure to the company given the unrealised gains some would be sitting on.
Falling out of favour
In terms of IAG specifically, I think the outlook’s bright. However, some might be concerned that the firm’s growth trajectory’s slowing. Back in 2020 and 2021, the business posted heavy losses as air travel was mostly grounded. Since then, the growth to get back to pre-pandemic performance has been full on. It managed to achieve this last year.
Yet the recent half year results for 2024 showed operating profit only modestly ahead of the same period last year. The profit after tax figure was slightly below H1 2023. So some investors might feel the business will stagnate now it has fully recovered from the pandemic. Hence, they might be selling the stock to find better growth opportunities elsewhere.
Why the stock’s still rallying
Despite the selling activity, there are clearly other buyers stepping in as we haven’t seen any sort of share price crash.
Even though the stock’s risen sharply in the past few months, the price-to-earnings ratio’s still well below what I would call a fair value. I use a benchmark of 10, with IAG currently at 4.98. So the share price has plenty of room to run before I’d call it overvalued.
Further, even though H1 profit didn’t alter much from last year, net debt was significantly reduced by 30% from the same period in 2023. This is important because lower debt reduces the interest costs. This frees up cash flow that can then be used in other areas of the business to fuel growth. Ultimately, this should help to translate to a higher share price in the future.
So even though some are selling the stock, if I owned it I’d be holding on as I think it could gain more.
