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With the FTSE 100 pushing in direction of contemporary all-time highs, some shares throughout the index are following go well with. This makes some shares doubtlessly overvalued, that means traders have to be cautious when in search of good worth alternatives. But there are definitely choices to think about, as I stumbled throughout this FTSE 100 inventory over the weekend.
Hovering excessive
I’m speaking in regards to the Worldwide Consolidated Airways Group (LSE:IAG). It’s a well-liked title amongst many traders, proudly owning and working corporations akin to British Airways, Aer Lingus and others.
The inventory is up 107% over the previous yr, as the corporate continues to profit from the post-pandemic journey rebound. The demand improve has boosted monetary efficiency, with H1 2025 working revenue reaching €1.9bn, a 43.5% improve in comparison with the identical interval final yr. Investor confidence has been buoyed additional by the enterprise reinstating dividends earlier this yr for the primary time because the pandemic.
Towards this backdrop, the share worth appreciation is logical. But it would shock some to know that the price-to-earnings (P/E) ratio stands at 8.08. I take advantage of the benchmark determine of 10 when making an attempt to assign a good worth to a inventory. Due to this fact, I’d say that utilizing this metric, the corporate is undervalued. Over the approaching yr, this might imply additional share worth beneficial properties, to maneuver the P/E ratio again in direction of the FTSE 100 common.
Why the long run appears vivid
Earlier this summer time, the enterprise positioned orders for 71 widebody plane from Boeing and Airbus. These deliveries are scheduled between 2028 and 2033, so there’s no speedy motion required. But the forward-looking order is a transparent indication to me that the administration crew is assured of future demand. It needs to get forward of the curve by ordering now to have the ability to serve clients for many years to return.
One other issue that impressed me was the rise in premium cabin demand thus far this yr. The corporate makes more cash from promoting these costlier seats. Lately, this hasn’t been an enormous space of focus, as getting load capability again to regular ranges was a precedence. But now that has been resolved, the push for higher-margin seats could possibly be an effective way to additional improve income within the coming yr.
After all, there are dangers. The airline sector is notoriously aggressive. It’s exhausting to actually differentiate a service, so worth is a key a part of buyer focus, with many operators speeding to seize market share. The enterprise can be uncovered to financial slowdowns, which trigger folks to chop again on discretionary spending on journey.
Even with this ongoing concern, I feel IAG is in a robust place. But primarily based on the valuation, I consider it could actually rally additional within the coming yr. That’s why I really feel it’s a inventory for traders to think about now.
