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What counts as a “normal” or “fair” P/E depends a lot on what the market expects for future growth and how risky those earnings might be. Higher growth or lower perceived risk can justify a higher multiple, while lower growth or higher risk usually points to a lower one.

Air France-KLM is currently trading on a P/E of 3.14x. That sits well below the Airlines industry average P/E of 9.08x and also below the peer group average of 53.95x. Simply Wall St also calculates a proprietary “Fair Ratio” of 14.31x, which is the P/E level suggested by factors such as the company’s earnings growth profile, its industry, profit margins, market cap and key risks.

This Fair Ratio can be more informative than a simple comparison with peers or the broad industry because it attempts to adjust for those specific characteristics rather than treating all airlines as identical. Comparing the Fair Ratio of 14.31x with the current P/E of 3.14x suggests the shares are trading below that fair level on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1426 companies where insiders are betting big on explosive growth.

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply your story about a company linked directly to your numbers such as fair value, and your expectations for future revenue, earnings and margins. On Simply Wall St’s Community page, used by millions of investors, you can set up a Narrative for Air France-KLM that connects what you think is happening with the business to a clear financial forecast and a fair value that you can compare with today’s share price to help you decide if, and when, you might buy or sell. Narratives are updated automatically when fresh information such as news or earnings is added, so your story and your numbers stay aligned without extra work from you. For example, one Air France-KLM Narrative might assume a higher fair value with stronger long term revenue and margins, while another could assume a lower fair value with more cautious revenue and profitability expectations.

Do you think there’s more to the story for Air France-KLM? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include AF.PA.

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