At 7x forward earnings, this could be the biggest FTSE 100 winner in 2025.

Picking the best performing stock in FTSE 100 because 2025 is almost certainly setting myself up for failure. However, I think investors should consider AG (LSE:IAG). The stock offers momentum, supportive trends, attractive value, and an attractive dividend.

Let’s take a closer look.

Top of the pack

IAG, which owns British Airways and Iberia, operates flights in continental and interregional budget markets. It is one of the largest in Europe in terms of fleet size. The company has seen a strong recovery in all business segments since the dark days of the pandemic. In fact, the civil aviation sector is expected to remain strong over the next few years.

According to analysts, IAG is likely to remain the best in class throughout this period. Its EBIT (earnings before interest and tax) margin is expected to reach 15% in 2027 – up from 10% in 2023. In fact, the Iberia brand is already reaching an EBIT margin of 14%. The group is expected to deliver high return on investment and free cash flow generation in the medium term.

The business is also expected to reap the benefits of a changing fleet, bringing more efficiency, particularly through fuel savings. That’s important because fuel costs represent a huge margin difference. Therefore, lower fuel prices combined with increasingly fuel-efficient fleets represent incentives for earnings growth.

The numbers add up

Most experienced investors will rely on quantitative metrics to some extent. Valuation models include the obvious valuation data, but also things like profitability metrics, growth expectations, and whether earnings expectations have recently been revised upward or downward. Many investors also like stocks with a strong share price as this often reflects investor sentiment about the stock.

So, what are these numbers?

• First, the stock trades at about seven times earnings. That seems to be about a 15%-20% discount to the global airline industry.
• Current forecasts suggest that revenues will grow by around 12% over the next three years, and the price-to-earnings (P/E) ratio will fall from 7 to 5.8 times by 2026.
• The company’s gross profit from last year is about 27% which is probably the highest in the industry.
• Over the past month, IAG received the highest proportion of positive earnings reviews from analysts. This tells us that the analysts are increasing in the company.
• As of June 2024, IAG reported a debt of £16.12bn related to the provision of £13.2bn of cash and services.

Something to worry about?

No investment is without risk. With IAG’s share price rising significantly over the past 12 months, we may see some profit taking as we enter 2025. If shareholders sell their stock to cover their gains, the share price can fall.

In addition, Russia’s war in Ukraine and conflicts in the Middle East have emphasized how vulnerable the sector is to fuel price fluctuations. With fuel representing around 25% of operating costs, rising prices have a significant impact on profitability.

An important point

IAG has all the earmarks of a winner as we head into 2025, and investors may want to put it on their watch list. It is well represented in my portfolio and I am tempted to buy more. The problem is that I’m already heavily invested in airline stocks.