The share price of International Consolidated Airlines Group (LSE: IAG) was down 2.4% in early trading today, making it the biggest FTSE 100 loser so far. This cannot be because of general market weakness, because the index is buoyant today. So, I believe this is a reaction to its financial results for the first nine months of the year, released earlier today. The headline numbers clearly continue to look poor, possibly sparking investor disappointment.
IAG’s headline numbers remain weak
The FTSE 100 company reported 35% lower revenues for the nine months to 30 September, compared to the same time last year. And it is still running at a loss as well. In the meantime, its borrowings have risen some 27.4%, adding to its financial burdens. Considering that travel is not back to its pre-pandemic levels, there is little that allows me to hold on to the hope of a quick recovery. These developments taken together look like a clear red flag, especially if I intend to hold the stock for a short time only.
The good bits
But for a long-term investor like me, even a relatively slow recovery is fine. And to that extent, I think IAG’s numbers are moving in the right direction. In fact, when I looked at the detailed financial results, they seemed like a good example of how to assess recovery stocks. And that is because there is just so much beyond the headline numbers here.
So for instance, I know that the company is still loss-making. But the extent of the loss has declined from last year, and it is down significantly. It is now less than half of what it was last year. The number has dropped even more if we consider standalone third-quarter figures this year. It is down by 67.4% from last year.
And there is more. Revenues for the third quarter more than doubled from last year because of a jump in passenger travel. Importantly, fuel costs did not wreak havoc on IAG’s financials during this period either. Its ‘Fuel, oil costs and emission charges’ segment showed a 21% fall on a year-on-year basis. This is significant in my view, because oil prices have seen a sharp rise in 2021. And IAG itself had flagged this as a source of concern a few months ago as well.
What’s next for the FTSE 100 stock?
I think things can get even better for it from here. Travel restrictions are broadly easing, even as some individual countries are stopping people-to-people exchanges on surging coronavirus cases. And with the world economy expected to continue growing fast next year, travel could see even more impetus.
I bought IAG stock a few months ago with this in mind. And so far, it has not disappointed. In fact, as I have said earlier, I think that the IAG share price could rise further in November once investors have the chance to absorb the full details of its numbers. On my part, I might just buy more of the stock now.
Manika Premsingh owns shares of International Consolidated Airlines Group. 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.
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