Although the FTSE 100‘s soared 110% since its pandemic low of March 2020, I believe the index is home to plenty of cheap stocks at the moment. Indeed, there’s one that trades on just 7.9 times its 2025 earnings.
Let’s take a closer look.
Who?
In 2025, International Consolidated Airlines Group (LSE:IAG), reported earnings per share (EPS) of 69.5 euro cents (59.2p at current (13 July) exchange rates), a 25% improvement on the previous year.
Yet the shares of the owner of Aer Lingus (Ireland), British Airways (UK), Iberia, LEVEL, and Vueling (all Spain) change hands for less than eight times historic earnings. By comparison, the FTSE 100 has a price-to-earnings ratio of around 18.
But not all industries are the same. Each has different risk profiles, capital expenditure requirements, and debt burdens. Indeed, International Consolidated Airlines faces all sorts of operational challenges – everything from rising fuel costs and geopolitical conflicts, to industrial action and regulatory changes — that could make investors wary.
That’s why, generally speaking, airlines attract a lower earnings multiple than other sectors.
A real example
However, I think the best way to value a company is to consider mergers and acquisitions in the same industry. After all, these are actual deals.
Here, we are fortunate because easyJet recently announced that it’s agreed in principle to be bought by Apollo Global Management. The transaction, which is subject to approval by Europe’s competition authorities, values the budget airline at 10.8 times its EPS for the year ended 30 September 2025.
If International Consolidated Airlines was valued on the same basis, its share price would be 35% higher. On this basis, the stock’s in bargain territory.
Indeed, analysts appear to agree that the airline’s stock is undervalued. They have a consensus 12-month share price target that’s around 15% higher. The most optimistic appears to value the group in line with the easyJet deal.
And despite the challenges that the Iran war caused – a spike in the price of jet fuel and the cancellation of thousands of flights – analysts are expecting an operating profit (before exceptional items) of £5.2bn in 2026.In 2025, it was £5bn.
Like most of us, shareholders will be hoping that the recent resumption of bombing is a temporary blip and that the ceasefire will resume again soon.
My view
International Consolidated Airlines has some strong brands in its stable. And it has a good mix of long-haul and short-haul flights. It also covers all price points in a competitive market. In addition, the business has proven to be remarkably resilient in recent years, which is a sign of a strong management team.
But although the group has much going for it — and I believe its shares are attractively priced — I think there are some better opportunities to consider elsewhere. More specifically, I reckon there are other industries likely to grow faster. Also, its stock’s twice as volatile as the market as a whole.
In short, I don’t have anything against International Consolidated Airlines – its low valuation multiple definitely makes it an attractive prospect — it’s just that I think more money could be made in other sectors where there are likely to be fewer potential challenges to contend with.
Should you invest £5,000 in International Consolidated Airlines Group right now?
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James Beard does not hold any positions in the companies mentioned.
