Each morning I have a quick look to see which shares are moving. I rarely expect to see International Consolidated Airlines (LSE: IAG) leading the way. But that’s what happened Tuesday. As I write, the IAG share price is up 5%, heading the FTSE 100.
It’s too early to tell whether this gain means anything significant, as the shares have still not regained the level they briefly reached on 8 October. But the freefall seems to have been brought to at least a pause. Investors may well be feeling more optimistic after the company’s successful capital raise. The new shares were admitted for trading on 6 October, and the IAG share price is up 15% since then.
Now, let me just step back from these daily developments for a moment. The Foolish investment approach is to look at the long-term prospects for a struggling stock like International Consolidated Airlines. As such, what happens on a day-to-day basis is really of limited importance. I do think it can be fascinating following things as they unfold — though perhaps I’m easily entertained.
The big picture
But if you get too caught up in how the market is reacting from one moment to the next, and where the IAG share price is going day by day, you can miss the big picture. The market’s big institutional investors are the ones that drive short-term market movements, and you might think they’re the ones to take cues from. But time and time again when we look back with hindsight, we find that those same big investment firms perform poorly over the long term. The majority of fund managers over history fail to match the FTSE 100 index. So individual Foolish investors can typically beat them by just investing in an index tracker.
Having said that, let’s get back to IAG. I’ve seen too many cases of companies in trouble raising capital through new share issues. And all too often it unfolds differently. We hear of a share issue, it gets off the ground successfully and the new shares commence trading. Yet within days, the share price resumes its downwards path. That the IAG share price has not done that is encouraging. At least, it hasn’t done it yet.
IAG share price steady
So, should you buy the shares now or not? I really can see the attraction of buying now. I’m reasonably sure the owner of two national airlines will survive. Even if it came to a last resort, I think there’s too much at stake for the government to let it fail. In a few years’ time, I can see British Airways and Iberia very much back in the air. Perhaps not with the same volumes as before — we could be in for a decade or more of less flying.
So what’s my problem? I’ve no idea how much more funding will be needed before we get back to seeing sustainable profits. That means I have no way to guess what dilution there might be, and who might own what proportion of the company when it’s back to health. And I think the IAG share price could still be facing more pain before profit. That’s why I’ll pass.
