Trading Strategies: is now the time to buy IAG shares?

Wing surfers beside a British Airways plane preparing to take off at Sydney International Airport. Photo: David Gray/AFP via Getty Images.

Stock market volatility has soared since the commencement of the Iran war on 28 February. Indeed, the Volatility Index, which is often considered to be Wall Street’s “fear gauge”, spiked to its highest level since US President Donald Trump announced sweeping tariffs in April last year. And while the FTSE 350 index has clawed back some of its initial losses following the onset of conflict, it is still down 5% since the start of March.

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In the short run, the stock market’s performance is likely to remain highly unpredictable. After all, it’s impossible to accurately determine how long the war will last, how widespread it will become, or to precisely what extent it will affect energy prices, inflation, interest rates and, ultimately, the economy’s growth rate.

But it seems relatively likely that a period of intense stock market volatility lies ahead in the near term, with investor sentiment having the potential to shift dramatically over a short time frame based on news emanating from the Middle East.

Buying opportunity?

In such an environment, some investors may naturally shy away from the stock market in an attempt to avoid heightened volatility and the potential for paper losses on their holdings. However, falling stock markets have often presented some of the best buying opportunities in the past for long-term investors.

They provide the chance to buy high-quality companies at discounted prices. Such firms are highly likely to survive geopolitical, economic or other risks based on their sound financial positions and clear competitive advantages. They may even be able to improve their competitive position during a period of economic uncertainty by, for example, utilising their solid balance sheet to reinvest for growth or make acquisitions at attractive prices while their peers are unable to do likewise.

The discounted market valuations of such companies, moreover, not only provide support against future stock market declines, given that they already trade below intrinsic value, they also offer capital growth potential. Given that a key tenet of stock market investing is to purchase shares at low prices and sell them at much higher prices, discounted market valuations prompted by conflict in the Middle East could present a worthwhile buying opportunity.

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Indeed, the stock market and global economy are highly likely to rebound in the long run from any short-term challenges. Their past performance shows that they are inherently cyclical but have always recovered from even their lowest ebbs to deliver positive growth that is in line with their long-term averages. This suggests that even if investors experience paper losses on their holdings in the short run, capital gains are likely to be ahead over the coming years.

Permanent loss of capital

Of course, paper losses caused by intense stock market volatility should not be confused with a permanent loss of capital. Indeed, just because a company’s share price is volatile does not necessarily mean it has a higher chance of going bust. After all, rapidly fluctuating short-term share price movements are heavily dictated by changing investor sentiment that, in turn, is hugely affected by emotions which can often prove to be severely misplaced.

Certainly, investors who crystallise paper losses inevitably make them permanent. But those investors who adopt a long-term outlook and allow their holdings an extended time period to recover are likely, according to the stock market’s past performance, to enjoy capital gains over the long run.

A lowly market valuation

Source: ShareScope, 12 March 2026. Past performance is not a guide to future performance.

At present, the share prices of cyclical firms have been among the most heavily impacted by recent geopolitical events in the Middle East. This is unsurprising given that their performance is highly affected by the wider economy’s outlook. Therefore, long-term investors who are able to accept the possibility of elevated volatility in the short run may wish to consider cyclical firms due to their potentially lower valuations vis-à-vis the wider stock market.

For example, British Airways owner International Consolidated Airlines Group SA (LSE:IAG) currently trades on a forward price/earnings (PE) ratio of less than 6. This is significantly lower than the FTSE 100 index’s earnings multiple of 14.1, with the travel and leisure firm’s shares having fallen sharply following the commencement of war in Iran. Indeed, its shares are currently 12% down on their level from the end of February. Over the same period, the UK’s large-cap index has fallen by 5%.

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Potential risks

Clearly, investor sentiment towards IAG has been impacted by the firm’s highly cyclical status amid an uncertain near-term outlook. Indeed, if war in Iran persists, it could act as an ongoing drag on the firm’s financial performance, most obviously as a result of flight disruption. Furthermore, sustained conflict in the region may lead to a prolonged period of high energy prices that ultimately raises the company’s fuel costs and leads to squeezed profitability.

In addition, persistently elevated energy prices could ultimately prompt a rise in inflation from its already heightened level. In turn, this may force the Bank of England to implement a tighter monetary policy than previously expected that harms future real-terms wage growth and leads to lower consumer spending on discretionary items such as air travel.

Sound fundamentals

However, IAG’s financial position suggests it has the means to overcome a challenging near-term industry outlook. Its latest annual results showed that its net debt-to-equity ratio stands at 78%, with net finance costs being covered 8.6 times by operating profits during the 12-month period. Moreover, its total liquidity amounted to just under €11 billion (£9.5 billion) as at the end of the 2025 financial year.

Additionally, the company’s diverse operations mean it may be better placed than several sector peers to overcome ongoing flight disruption in the Middle East. IAG operates across a wide range of geographies, for example, that could mean its unaffected routes outside the Middle East help to offset the effects of a reduced volume of operations within the region.

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Growth prospects

IAG is currently forecast to deliver a rise in earnings per share (EPS) of 6% in the current year and 10% next year. Clearly, those figures could realistically be revised downwards as a result of the potential economic and operational impacts of war in Iran. However, the company’s EPS figure is set to be supported by a share buyback programme of €500 million that was announced alongside its latest annual results.

Furthermore, the company’s 2025 results showed that it has a sound strategy which could catalyse its profitability in the long run. For example, it invested €3.4 billion in the latest financial year in areas such as new aircraft, customer service and its onboard product. This helped to boost customer perceptions of the firm, with its net promoter score rising by 6.9 points to 29.5.

Risk/reward opportunity

IAG’s status as a highly cyclical firm means its share price could remain relatively volatile in the short run, with its movements likely to be significantly affected by news updates regarding the war in Iran. While this may dissuade some investors from focusing on it, the company appears to have the financial means to overcome an uncertain economic period. Moreover, its competitive position and strategy suggest it is well placed to deliver profit growth in the long run.

Given its lowly market valuation, moreover, the firm appears to offer a wide margin of safety and scope for capital growth over the coming years. Therefore, on a risk/reward basis, it could offer investment potential.

Robert Stephens is a freelance contributor and not a direct employee of interactive investor.