IAG Shares Surge 125% in a Year, Yet P/E Ratio Remains Attractive at 7.85

The stock market often rewards patience, and the recent performance of IAG shares proves just that. In the past 12 months, International Consolidated Airlines Group (LSE: IAG.L), the parent company of British Airways and Iberia, has delivered a spectacular 125% return to investors. Yet despite this enormous rise, the company’s price-to-earnings (P/E) ratio remains at just 7.85, making it one of the most attractively valued stocks in the FTSE 100.

This paradox of explosive share growth combined with low valuation has caught the attention of retail and institutional investors alike. 

Strong Recovery in Air Travel Demand

Over the last year, the global aviation industry has rebounded sharply. International air travel, particularly across Europe and transatlantic routes, has surged. IAG has been at the forefront of this recovery, operating a robust network across high-traffic routes.

Passenger numbers for IAG’s core airlines have steadily climbed as travel restrictions eased and consumer confidence returned. British Airways resumed long-haul routes, and Iberia saw improved demand in both leisure and corporate travel segments. The summer of 2024 was especially strong, and early trends in 2025 indicate a continuation of this momentum.

Despite macroeconomic pressures, including inflation and fuel costs, IAG managed to maintain strong load factors and pricing power, helping boost profitability.

Revenue and Profitability on the Rise

IAG’s latest financial results show impressive year-over-year growth. Revenues have bounced back to near pre-pandemic levels. More importantly, profit margins have expanded, supported by increased ticket prices, full cabins, and tight cost controls.

The company’s focus on fleet modernization has also begun to pay dividends. New fuel-efficient aircraft have reduced operational expenses and improved sustainability metrics. As of now, the balance sheet has also strengthened, with debt levels under control and liquidity reserves in place to support future expansion.

While many companies are grappling with rising interest rates and weakening consumer demand, IAG is thriving, thanks to its exposure to a sector in full recovery mode.

Why the P/E Ratio Still Looks Cheap

Despite the impressive rally, the P/E ratio of 7.85 tells a story of undervaluation. This figure, far below the industry average, indicates that investors are still pricing IAG shares conservatively.

This could be due to lingering concerns about geopolitical risks, rising fuel prices, or potential disruptions from strikes or regulatory challenges. However, even when accounting for these variables, the earnings potential of IAG is significant.

Many analysts believe the market has not fully priced in the sustained recovery in international air travel. Moreover, IAG’s strong position in both leisure and business travel segments gives it a competitive edge that justifies a higher multiple.

Growth Catalysts in Play

Several drivers could continue to fuel the rally in IAG shares:

• Expansion into new markets: IAG is actively targeting underserved regions and emerging markets, increasing its global footprint.
• Loyalty programs and partnerships: British Airways’ Executive Club and Iberia Plus offer strong incentives to frequent flyers, improving customer retention.
• Cargo and freight services: A growing area of revenue, cargo operations have supported profitability during periods of lower passenger travel.
• Digital transformation: Enhanced booking systems, automation, and AI-driven customer service platforms are improving efficiency and experience.

Each of these initiatives is designed to boost earnings over the medium term and could push the valuation multiple higher.

Analyst Sentiment and Institutional Support

A growing number of analysts are taking a bullish stance on IAG. Several investment houses have revised their price targets upward, citing strong earnings visibility and attractive valuation.

Notably, institutional investors have started accumulating IAG shares, as disclosed in recent filings. This kind of backing provides a level of confidence in the long-term fundamentals of the stock.

Moreover, insiders within the company have been holding their positions or even buying more shares, a bullish sign that leadership believes in the firm’s prospects.

Risks to Monitor

Although the outlook for IAG shares remains positive, there are potential headwinds to consider:

• Volatile fuel prices can impact margins quickly.
• Labor disputes and strikes remain a real threat in the aviation industry.
• Economic slowdowns or recessionary conditions could dampen travel demand.

Nonetheless, IAG has shown resilience through past disruptions and has diversified enough to weather future storms.

Is Now the Right Time to Buy IAG Shares?

For investors looking for a value stock with growth potential, IAG stands out. The recent 125% rise may deter some, but the P/E ratio suggests there’s still room for further appreciation.

Compared to many FTSE 100 peers trading at higher multiples with slower growth, IAG offers a compelling mix of strong earnings, industry momentum, and relative undervaluation.

For those with a medium-to-long-term investment horizon, IAG shares may well deliver further upside while offering a hedge against inflation through its exposure to real-world consumer demand

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Disclaimer:

This content is made for learning only. It is not meant to give financial advice. Always check the facts yourself. Financial decisions need detailed research.