I think this is the FTSE 100’s biggest bargain. Here’s why I’m buying today

Time is running out to buy this FTSE 100 (INDEXFTSE: UKX) growth star, says Rupert Hargreaves.

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Nearly 4,000 public companies are currently trading on London’s equity markets, but there’s just one that makes up the bulk of my portfolio. This company is, in my opinion, the biggest bargain around and I have been buying more as its stock price has declined over the past six months.

Today, I’m going to explore why I believe this business is the best buy in the FTSE 100, and why time could be running out for other investors to get in on the action.

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FTSE 100 favourite

I believe Prudential (LSE: PRU) is one of the most undervalued companies trading in London today. Over the past six months, shares in this company have slumped by more than a fifth, even though the underlying business has continued to grow. 

Indeed, today the company revealed, ahead of an investor event, that during the first nine months of 2018, life insurance new business profit increased by 17%, or by 12% on a constant currency basis. All of the group’s divisions are growing sales, particularly Prudential’s Asian business where, in the first nine months of 2018, new business profit increased by 15%. In the US, new business profit rose 22%, thanks to the benefit of higher interest rates and tax reform.

Meanwhile, the group’s M&G fund management business, which the company is in the process of spinning off, has seen an 18% increase in new business profit during the first nine months of 2018. However, total funds under management declined slightly year-on-year, due to the loss of several large investment mandates.

Firing on all cylinders

The numbers put out today show Prudential is firing on all cylinders. But despite the impressive growth across the group, the market doesn’t seem to care. 

Even though analysts are expecting earnings per share (EPS) growth of 46% for 2018 at the time of writing, shares in the insurance conglomerate are changing hands for just 10.8 times forward earnings. On top of this, there’s a 3.3% dividend yield on offer for shareholders.

Now, I can’t claim to know where the market is going over the next few weeks, months or even years, but I do know that as long as Prudential continues to churn out earnings growth, it’s only going to be a matter of time before the share price catches up. The company’s exposure to Asia, where the market for financial services is still severely underdeveloped, and penetration for life insurance products is low, gives me confidence that the enterprise can continue to notch up double-digit annual sales growth for the foreseeable future. 

Spinning off M&G will help management concentrate the company’s efforts on building out its Asian operation, and this might attract a higher valuation for the shares. If not, I think it’s only a matter of time before a buyer emerges for the Asian business. 

There’s already been speculation this year about a possible offer, and considering the vast disconnect between Prudential’s growth, potential and valuation, I’m not surprised. With this being the case, it could only be a matter of time before a bid emerges for the whole business. 

That’s why I’m buying this unloved FTSE 100 growth champion while I still can.

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Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

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Rupert Hargreaves owns shares in Prudential. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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