£10,000 invested in International Consolidated Airlines Group (LSE:IAG) shares two years ago would be worth £19,100 today. The stock is up 91% over the period. That’s clearly far ahead of the market in general.
Thankfully, I had a sizeable holding in the airline group throughout that period. However, I’ve since disposed of my stock. There were two main reasons for this.
Firstly, I believed Jet2 was by far the cheapest and best investment opportunity listed in the UK, and took my opportunities to build a large holding in the company. With Jet2 shares surging between April and May, it became my largest holding.
With Jet2 surging, concentration risk became an issue. And that risk was my exposure to airlines as a whole, not just Jet2. So, I took the decision to sell my shares in International Consolidated Airlines.
This wasn’t an easy decision to make, but there was another contributing factor; geopolitics. Operating intercontinentally, International Consolidated Airlines is more exposed to geopolitics than many of its UK-listed peers.
For example, Trump’s tariffs are expected to weigh on US-Europe trade, thus lowing demanding for air travel and all the other products that ship in the cargo hold.
While all UK airlines are impacted by potential higher fuel costs emanating from renewed hostilities in the Middle East, International Consolidated is the only company having to reroute flights.
Is the stock still worth considering?
One of the reasons I bought the stock originally over its peers was because it was more diversified. It has several classes, it serves business and leisure, and it serves markets all over the world. It’s very different to Jet2.
On a valuation front, the metrics suggest the shares are trading at relatively low earnings multiples, reflecting both improved profitability and ongoing market caution. The price-to-earnings (P/E) ratio is forecast at 5.9 times for 2025, falling to 5.5 times in 2026 and five times in 2027, which is well below the long-term market average and indicates expectations for steady earnings growth.
Analysts expect revenues to rise to €33.3bn in 2025, with earnings per share forecast at €0.63, up 10% from the previous year. These low P/E ratios may appear attractive, but it is essential to consider the firm’s net debt, which remains substantial at €7bn in 2025 and will only gradually decline in future.
Enterprise value-based ratios reflect this elevated debt level. For example, the EV-to-EBITDA, which stands at 3.4 times in 2025 and falls to 3 times by 2026. High net debt means that a portion of operating cash flow is required for servicing obligations, which can amplify risks, particularly if the operating environment deteriorates.
However, I certainly believe International Consolidated Airlines remains worth considering. It’s just that I believe Jet2 was worth pursuing more.
