Up 29%, this FTSE 100 stock still looks cheap to me
Despite the FTSE 100 breaking through the 10,000-barrier for the first time on 2 January and staying there since then, there are still plenty of cheap stocks around. Fortunately, thereâs a simple technique available to help identify bargains. Iâve used this approach to find an undervalued share that I think could be something of a hidden gem.
Flying high
The share price of International Consolidated Airlines Group (LSE:IAG), owner of British Airways, Iberia, Vueling, Aer Lingus, and LEVEL, has been making steady progress over the past 12 months. Itâs currently (26 January) close to its five-year high, but even so, analysts reckon the shares are worth 14% more.
Indeed, in November 2025, JPMorgan said IAG remains its top pick in the Europe airline sector. The most optimistic of brokers has set a target thatâs nearly 60% higher than todayâs share price.
A simple approach
One of the most popular ways of identifying cheap stocks is to use the price-to-earnings (P/E) ratio. Most analysts like to consider future profits when using the measure, but this must come with a health warning. After all, there are no guarantees that forecasts will be met.
In fact, the groupâs shares fell 11.6% on 7 November 2025, when it reported its Q3 results. Revenue was â¬200m lower than analysts were expecting and operating profit was just short of their predictions. Adverse currency movements and softer transatlantic passenger numbers were the biggest reasons for the shortfall.
But whether you look forwards or backwards, IAGâs stock still appears cheap to me. Based on the groupâs results for the four quarters to 30 September 2025, its P/E ratio is just 7. This is lower than easyJetâs. And based on City forecasts for 2026, IAGâs multiple falls a bit more. JP Morgan reckons the stock has a forward (2026) P/E ratio of just 5.5.
Industry issues
However, it must be noted that airline multiples are lower than those in many other sectors, reflecting specific concerns about the industry.
The pandemic showed how vulnerable the sector can be. IAG was losing â¬185m a week at the height of Covid, had to cut thousands of jobs and borrow billions as a result.
| Year | Profit/(loss) after tax (â¬m) |
|---|---|
| 2019 | 1,715 |
| 2020 | (6,935) |
| 2021 | (2,933) |
| 2022 | 431 |
| 2023 | 1,212 |
| 2024 | 3,117 |
Hopefully, this was a once-in-a-generation event but there are still plenty of other operational issues that IAG has to contend with, many of which are outside its control. One example is the cost of jet fuel. For the first nine months of 2025, fuel costs and emissions charges accounted for 25% of all operating expenditure.
Also, consumers tend to be very price conscious and generally show little loyalty to one particular airline.
A positive outlook
Despite these challenges, I still think IAGâs a stock to consider. And not just because its shares have a lower-than-average P/E ratio. It owns the British, Spanish, and Irish flag-carriers and has 601 aircraft flying to 259 destinations in 94 countries.
Importantly, the groupâs airlines cover all price points in a market thatâs growing. By 2050, Airports Council International predicts that global passenger traffic will be 244% of 2019 levels. Similarly, Airbus is expecting the number of cargo planes to nearly double by 2044. In my opinion, IAGâs well placed to be one of the major beneficiaries.
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JPMorgan Chase is an advertising partner of Motley Fool Money. James Beard has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
