Down 25% in a month, but experts forecast the IAG share price is set for a mega-rally!

I thought I’d missed my moment with the International Airlines Group (LSE: IAG) share price. After all, it doubled last year, and I didn’t buy it.

Yet British Airways-owner IAG has suddenly hit turbulence, with the shares plunging 25% in the past month. Normally, that sort of thing happens after I buy a stock, not before.

I’ve dodged a bullet but have I also landed on a second buying opportunity?

What went right for this FTSE 100 flier?

Despite the recent dip, IAG shares are still up 47% over 12 months. Last year’s stellar performance was powered by the post-pandemic travel boom and, crucially, a vibrant US economy. Now both are imperilled.

British Airways is a major player on transatlantic routes, and with Americans eager to travel and spend, the airline was in the perfect position to cash in. That gave IAG an edge over smaller European-focused carriers as the continent’s economy ground through the lower gears.

This translated into bumper results for 2024, published on 28 February, with operating profits soaring 22% year-on-year to €4.3bn as traveller numbers recovered at pace. The group paid €435m in dividends and launched a €1bn share buyback, both signs of financial confidence.

We live in a different world today. Donald Trump is shaking global markets, and with its huge fixed costs and sensitivity to global events, the airline sector hates uncertainty more than most.

There will be plenty of that in coming months. The longer-term picture for IAG is promising, but the short term could bring anything. We can’t rule out further share price volatility in the weeks ahead.

Yet IAG’s stock is rocketing back into deep value territory. Its price-to-earnings (P/E) ratio has slipped back to just 5.6. At the start of last year’s blistering run, its P/E was down to around 4 times. Investors may be getting a whole new buying opportunity.

Can this stock start growing again?

The 26 analysts covering IAG have a median 12-month target of 393p per share. That would be a 49% gain from today’s price, a brilliant rally if it materialises. 

Many of those forecasts will have made before the recent share dip, so I’m viewing them with extreme caution. But even accounting for market jitters, the upside potential is hard to ignore. The dividend should continue to recover, with analysts expecting a 3.2% yield this year, rising to 3.6% in 2026. Again, that’s not guaranteed.

IAG’s still sitting on more than €6bn in net debt. The airlines sector is forever at the mercy of factors companies can’t control, everything from fuel prices to extreme weather or even volcanoes. Which brings us back to Trump. If trade tensions escalate, transatlantic travel could suffer.

The travel sector is cyclical, and history suggests downturns don’t last forever. But investors will need strong nerves while they wait for clearer skies.

With a dominant market position, strong cash flow and a dirt cheap valuation, IAG looks well-placed if today’s storms pass.

I’m not buying for now and investors considering buying this dip must take a long-term view. IAG’s a hugely exciting opportunity, but it’s also right on the front line of whatever the world throws at us next.