As fears around the Omicron Covid variant temporarily pulled down markets late last week and early this week, investors scrambled to pick up undervalued shares. Unfortunately for some, it seems that the flash crash is over. However, there are still many great UK companies that continue to be undervalued by the wider market.
JD Sports Fashion (LSE: JD) has had a phenomenal 2021. The sports clothing retailer opened a further 600 stores around the world. And it increased its revenue to a new all-time high of £3.8bn. It also nearly tripled the pre-tax profits made in 2019, going from £158m to £439m. Yet right now, the share price is trading at 222p, down from 234p on November 18 (but up from 146p this time last year).
Risks and rewards
Everything seems to be going well for JD but all is not perfect. It has been ordered to sell Footasylum, one of its subsidiary chains, over competition concerns. While it owns more than 50 brands, Footasylum is a very recognisable part of its business, bringing in an additional £232m in revenue in the 2021 financial year, even though this was down 6.8% from FY 2020 due to the pandemic.
Naturally being forced to sell a chunk of its operations isn’t ideal for a business, and I believe that concerns about how this will affect next year’s profits are keeping the share price down.
But JD remains a buoyant company with fingers in many pies in the UK and further afield. That includes sportswear, gyms, outdoor clothing and several other shoe brands. I think that its store expansion seen this year will continue to increase its earnings in 2022 and am more than happy to add it to my portfolio.
A lot to like
Wise (LSE: WISE), formerly known as TransferWise, is a UK-based financial technology company that allows its users to send money around the world quickly and cheaply, while offering some of the most competitive exchange rates on the market.
Wise first went public early this year and has naturally lost some of its value, falling from 880p in July down to 777p in early December. This is fairly common after an IPO as the market takes time to determine the true value of a share.
There’s a lot I like about Wise. As a tech company the majority of its operations take place online, resulting in lower overheads. It also earns cash by taking a small cut of each exchange, allowing the business to scale with user volume.
Customer numbers surged this year resulting in a 43% jump in revenue in Q1. Earnings have also doubled from 2020, although the margins have shrunk. Wise’s management decided to expand operations, develop new products and enter new markets. One of best products it offers is the borderless account and debit card, which allows people to spend money anywhere in the world, converting currencies at real-time exchange rates.
Its current market cap is £7.7bn but the share’s price-to-earnings ratio is uncomfortably high at 352.55. Investors clearly believe in the company but it’s still something that concerns me.
I think that the shares may be overvalued in the short term, but undervalued over the long term. Once more people learn of the borderless account, I think its user base will skyrocket. I definitely want to be owning Wise shares when that happens.
James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.