Just because a share has a low price does not make it cheap. For me, cheapness is about value. The share price needs to look like good value when weighed against the business prospects of the company. Using that approach, I have been looking for cheap shares to buy. Here are two I would consider buying today for my portfolio.
Photo-Me
The vending company Photo-Me (LSE: PHTM) not only operates the photo machines that give it its name. It also operates everything from self-service launderettes to juicemakers. This business has proven lucrative in the past. By putting its machines in spots that typically get lots of customer traffic, the company is able to profit from a sudden desire for refreshment or regular need to do laundry.
Operating across a variety of areas and in many countries has given it expertise in running a network spanning thousands of locations. Individual machines charging pennies or pounds at a time may not seem like big money spinners. But when added together at scale, they can be highly profitable. Last year, for example, the company reported post-tax profit of almost £22m.
That means its price-to-earnings (P/E) ratio is around 12. But earnings remain 50% or more below their pre-pandemic levels. Ongoing restrictions in some markets could continue to weigh on earnings this year. However, the company trades at a forward-looking P/E ratio in the single digits if it can get back to its former profit level. It also has a 4% dividend yield. I therefore see Photo-Me as cheap shares to buy for my portfolio.
Imperial Brands
Over the past year, the share price of Imperial Brands (LSE: IMB) has moved up by 12%.
Despite that, I continue to see these shares as cheap. The P/E ratio is less than nine. One thing I think helps explain that is concern that earnings could shrink in future. The company has sold off some attractive assets like its premium cigar business and demand in its core cigarette business is likely to keep falling in coming years.
But asset sales have helped cut debt and the company’s focus on improving market share in key cigarette markets seems to be paying off. The company increased its aggregate market share in its top five markets during the first half. Although sales volumes slipped 0.7% compared to the same period the year before, pricing moves meant revenues actually increased slightly.
I do see long-term risks in Imperial’s business model. But with a yield of 9% I think they are reflected in the share price and would consider buying Imperial for my portfolio.
Cheap shares to buy
I own both of these shares. I would consider adding more to my portfolio. I think Photo-Me is a better for my risk profile than Imperial Brands. But I reckon the large Imperial dividend yield helps to compensate me for the risks I see in the shares.
