Shares in International consolidated airlines (LSE:IAG) is up 95% in 2024, making it a top performer in FTSE100. Interestingly, he came in second place Rolls-Royce holdings (an boost of 90%), whose engines are used by many aircraft of this aviation group.

Therefore, it seems that the aviation industry is experiencing a renaissance after the pandemic.

Flying high

Indeed, the latest report from the International Air Transport Association predicts that industry revenues in 2025 will exceed $1 trillion for the first time. As a result of rising passenger numbers and increased freight traffic – combined with lower oil prices – a record-breaking global net profit of $36.6 billion is forecast.

The same is true for International Consolidated Airlines.

Analysts expect the operating result in 2024 (before exceptional items) to be EUR 3.7 billion. If achieved, this would be a 13.7% boost over 2019, the last full year before the arrival of Covid.

And in my opinion, despite the 47% gain since the beginning of October 2024, the stock looks attractively valued.

Number crunchers are forecasting earnings per share (EPS) of 53 eurocents (44p at current exchange rates) in 2024. As such, the company’s shares are currently trading at a multiple of 6.9 (January 3).

Looking ahead to 2025, this ratio will drop to 6.3.

Encouragingly, the company’s stock update for the nine months ended September 30, 2024 included a lot of good news. Revenue, operating profit and EPS were higher than in the same period of 2023.

And the prospects are promising. The company said: “Demand remains strong… and we expect a strong financial final quarter of 2024“

Come back to earth

However, despite these positives, my investment carries a lot of risk. This is because, with the exception of mining, I can’t think of a more challenging industry to operate in.

As might be expected of a publicly traded company, its directors have paid considerable attention to the potential threats facing the group. They also identified 57 significant strategic, operational, financial and regulatory risks.

These include everything from increased competition and lack of access to financing, to a possible cyberattack and prolonged employee industrial action.

Looking at the threats, potential supply chain problems seem to be the most vital at the moment. Problems with the Rolls-Royce Trent 1000 engine caused British Airways to cancel a number of flights. If these problems persist, I doubt whether IAG or Rolls-Royce will be the stars of the FTSE 100 in 2025.

Moreover, given that 28.3% of operating expenses can be attributed to fuel and emissions costs, any major boost in oil prices could hurt the bottom line. Unfortunately, with so many global conflicts, this cannot be ruled out.

What should I do?

When a company’s stock price is in a bull trend, I often think I’ve missed the boat. However, due to the attractive valuation, I still believe that there is plenty of room for continued growth in this stock.

The average price-to-earnings ratio of the 73 publicly traded airlines is 8.88. If we apply this to International Consolidated Airlines’ 2024 earnings, a case can be made that the stock is undervalued by 30%.

And in my opinion, despite the numerous potential threats, airline executives have shown that they can face them. Ultimately, they managed to steer the company through the unprecedented challenge of Covid.

So I’m going to keep this stock on my watchlist for when I have some spare cash.