International Consolidated Airlines Group (LSE:IAG) shares are up an impressive 55% over the past year. However, the IAG share price is still down 38% over the past five years, notably since the stock market crash in early 2020 from the pandemic. Yet with the financial performance improving, I wanted to see what it could take for the stock to make back the losses.

Long story short

During the week commencing 17 February 2020, IAG shares were trading easily above 400p. Yet the impact of lockdowns and the subsequent market crash meant the share price fell 70% in the following month.

This might seem like an extreme move now, but at the time investors were in panic mode. IAG was unable to operate many flights due to those lockdown measures. At the same time, it was incurring costs for having the planes stationary on the runways. Unfortunately, it was a recipe for disaster.

Even though the business posted a loss before tax of almost €8bn for 2020, it did survive. If we fast forward to 2024, IAG’s back in full operational mode. Importantly, the firm’s now profitable again. However, the share price is at 214p, so still some way off the 400p levels from early 2020.

Reasons to consider

One reason for this is the fact that borrowing levels are higher now than in early 2020. In the 2019 annual report, the company reported borrowings of €12.4bn with total liabilities of €28.6bn. The 2024 report (using 2023 figures) showed that borrowings had risen to €13.8bn, with liabilities also up to €34.4bn.

I understand that IAG had to take on more debt to ensure survival through the pandemic. But until it can reduce this, I feel the share price will be hampered.

Another factor is that in early 2020 I’d argue that the stock was fairly valued. Now I think it’s undervalued. For example, the price-to-earnings (P/E) ratio’s just 5.08. This is well below the fair value figure of 10 that I use. I think some are still cautious about investing. Yet if the earnings per share stayed the same and the share price doubled (to make the P/E ratio 10), then the share price would be back above 400p!

Patience needed

I do believe the IAG share price will get back to 2020 levels. However, I feel it’ll take at least another couple of years to achieve this. The stock isn’t going to double in value overnight, or even in just a few months.

The company needs to keep growing and ensuring it generates solid profit in the meantime. It should then use some of this money to pay down debts. A risk going forward is that the short-haul carrier space is very competitive. So it could lose out on valuable market share, which could negatively impact finances.

I’ve got IAG on my radar to monitor in coming months as a value play I’m thinking about.