UK investors tend to like low-priced stocks. It seems they’re drawn to the fact that they get lots of shares for their money.
Here, I’m going to highlight two UK stocks trading under £5 that I’d be comfortable buying today. Both of these companies have momentum right now, and look poised to benefit from dominant long-term structural trends.
A UK electric vehicle stock
The first stock I want to highlight is Volex (LSE: VLX). It’s an under-the-radar UK manufacturing company that specialises in products that provide power and connectivity for both everyday items and complex machinery.
Its products, which include power cords and cables, are used in a number of high-growth markets including the electric vehicle (EV) and data centre industries.
Half-year results from Volex earlier this month showed the company is growing rapidly right now. For the 26 weeks to 3 October, revenue was up 45% year-on-year to $293m, while underlying operating profit was up 31% to $27.3m.
One highlight of the results was EV market sales, which were up 210% to $45m. Basic earnings per share came in at $0.11, up 8% year-on-year.
“With excellent long-term prospects from organic growth and acquisitions, we are confident in our strategy, our operating model and our ability to create further shareholder value,” said chairman Nat Rothschild.
However, the market was unimpressed with these H1 results, due to the fact that the company mentioned it’s investing for growth. This spooked investors and pushed the share price down.
And I see this pullback as a buying opportunity as the forward-looking P/E ratio is now in the low 20s. That’s an attractive valuation, in my view, given the growth here.
Of course, there are risks to consider. One is supply chain issues, which are impacting a lot of manufacturing companies right now. Another is competition from rivals.
Overall, however, I think this stock offers a nice risk/reward proposition right now.
A top stock under £5
Another UK stock under £5 I like the look of right now is Advanced Medical Solutions (LSE: AMS). It’s a leading developer and manufacturer of advanced wound care and surgical products. Its products, which are marketed under a range of brand names, are sold in nearly 80 countries worldwide.
Like many healthcare companies, AMS saw its revenues dip during Covid due to the fact that many elective medical procedures were cancelled. However, the company now appears to be making a strong recovery. Indeed, in its half-year results for the six months ended 30 June, the group posted revenue of £50.2m, up 28% year-on-year, and profit before tax jumped 133% year-on-year to £12.4m.
Looking ahead, I see a lot of growth potential here. In the short term, the company should benefit from elective surgery backlogs that have built up globally over the last 18 months. Meanwhile, in the long run, it should benefit from the world’s ageing population, which is likely to drive demand for wound care products higher.
One risk here is the stock’s valuation. Currently, the forward-looking P/E ratio using next year’s earnings forecast (10.4p per share) is in the low 30s. This valuation doesn’t leave a huge margin of safety. If future growth is disappointing, the stock could take a hit.
But I’m comfortable with this valuation. That’s because I think this company can generate significant growth in the years ahead.
