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With the FTSE 100 pushing towards fresh all-time highs, some stocks within the index are following suit. This makes some shares potentially overvalued, meaning investors must be cautious when seeking good value opportunities. Yet there are certainly options to consider, as I stumbled across this FTSE 100 stock over the weekend.
Soaring high
I’m talking about the International Consolidated Airlines Group (LSE:IAG). It’s a popular name among many investors, owning and operating companies such as British Airways, Aer Lingus and others.
The stock is up 107% over the past year, as the company continues to benefit from the post-pandemic travel rebound. The demand increase has boosted financial performance, with H1 2025 operating profit reaching €1.9bn, a 43.5% increase compared to the same period last year. Investor confidence has been buoyed further by the business reinstating dividends earlier this year for the first time since the pandemic.
Against this backdrop, the share price appreciation is logical. Yet it might surprise some to know that the price-to-earnings (P/E) ratio stands at 8.08. I use the benchmark figure of 10 when trying to assign a fair value to a stock. Therefore, I’d say that using this metric, the company is undervalued. Over the coming year, this could mean further share price gains, to move the P/E ratio back towards the FTSE 100 average.
Why the future looks bright
Earlier this summer, the business placed orders for 71 widebody aircraft from Boeing and Airbus. These deliveries are scheduled between 2028 and 2033, so there’s no immediate action required. Yet the forward-looking order is a clear indication to me that the management team is confident of future demand. It wants to get ahead of the curve by ordering now to be able to serve customers for decades to come.
Another factor that impressed me was the increase in premium cabin demand so far this year. The company makes more money from selling these more expensive seats. In recent years, this hasn’t been a big area of focus, as getting load capacity back to normal levels was a priority. Yet now that has been resolved, the push for higher-margin seats could be a great way to further enhance profits in the coming year.
Of course, there are risks. The airline sector is notoriously competitive. It’s hard to really differentiate a service, so price is a key part of customer focus, with many operators rushing to grab market share. The business is also exposed to economic slowdowns, which cause people to cut back on discretionary spending on travel.
Even with this ongoing concern, I think IAG is in a strong position. Yet based on the valuation, I believe it can rally further in the coming year. That’s why I feel it’s a stock for investors to consider now.
