The average price-to-earnings ratio on the FTSE 100 at the moment is about 18. One way to look at this is a stock that trades at 24 times earnings is going for about a 33% premium on the average (relative to profits). At the same time, a stock at 12 times earnings is a 33% discount.
As you might guess, stocks that reach into the single-digit P/Es are far and few between. And it’s why a certain stock reaching a P/E ratio of close to six seems scarcely believable to me.
Full swing
The stock I am referring to is IAG (LSE: IAG) – the airline group that manages British Airways and several other European airlines. The current P/E ratio is 6.2 – almost the lowest on the entire FTSE 100.
The strangest thing? This was a company on the up and up. The recovery post-pandemic was in full swing and had just posted record earnings in February 2026. At the same time, the firm was back to paying dividends for the first time since Covid-19, and its share price had climbed 363% since a 2022 low.
And then? The awful conflict in Iran erupted. Aside from the humanitarian consequences, this has caused mass cancellations of flights, and early signs are that travellers are looking less adventurous in their bookings. The surging price of oil will impact fuel costs too – one of the most important considerations for an airline.
So there’s the real question. Is this a temporary blip that might be looked at as a bargainous buying opportunity a little down the line? Or are these the warning signs of an upcoming crisis for the firm?
Risk profile
As investors, we do have to grapple with the future and all the wonderful things it can bring us. Often, that can be crises that no one could ever have seen coming. Some call these unknown unknowns, others black swan events. In any case, these kinds of unpredictable happenings are a risk for any company and perhaps a few more so than companies in the business of needing a peaceful and interconnected world, like airlines.
It wasn’t just IAG that crashed after the pandemic grounded flights; it was all airlines. And it’s not just IAG trading cheaply at the moment; easyJet is trading at a similar times number of earnings. The point being: there is a huge risk profile here that is irrespective of what’s going on in the particular company.
With all that said, today’s rock-bottom valuation could be a buying opportunity here should flights get back to normal in the near future. Obviously, that’s not guaranteed. But the latest analyst forecasts are optimistic, with a consensus estimate for the next 12 months forecasting a 39% increase in share price.
That’s why I think investors could consider it if they know what they’re getting into. And if a few cards fall into place, then I’d not be the least bit shocked to see IAG potentially emerge as one of the best buys all the way back in early 2026, later down the line.
