A lot of shares on the London Stock Exchange (LSE) look cheap right now. With many stocks currently trading way below their highs, it’s not hard to find value.
Here, I’m going to highlight a cheap LSE stock City analysts are quite bullish on. According to one broker, it has the potential to rise more than 50% from its current levels.
Significant growth potential
The stock I want to highlight today is Volex (LSE: VLX).
It’s an under-the-radar UK manufacturing company that specialises in power products. Its customers include businesses in healthcare, data centre, consumer electronics and electric vehicles (EVs), the latter includes a new partnership with Tesla to develop charging solutions.
Now Volex shares have had a good run this year. Year to date, they’re up over 30%.
However, analysts at HSBC believe the shares can go much higher. Indeed, yesterday, they raised their price target for the stock from 400p to 510p.
Given that Volex’s share price currently stands at around 330p, that implies the stock could potentially rise about 55% from here.
Benefiting from the EV boom
Is this share price target realistic?
I think so. Volex is growing at an impressive rate right now thanks to its exposure to high-growth industries (TVs, data centres, etc) and some savvy acquisitions.
This financial year (ending 2 April 2024), its revenue is projected to grow by around 13% to $817m. Meanwhile, net profit is expected to climb by around 40% to $52.9m.
This growth doesn’t seem to be reflected in the company’s valuation however. With analysts forecasting earnings per share (EPS) of 31 cents for the current financial year, the company’s price-to-earnings (P/E) ratio is about 13.5 at today’s share price.
I see that as too low. Personally, I think this stock has the potential to command a P/E ratio in the high teens.
Add in solid earnings growth over the medium term (EPS forecast for the next financial year is 35.5 cents), and a share price of 510p is achievable over the next 12-18 months, to my mind.
I’m a buyer
Of course, there’s no guarantee Volex shares will hit 510p any time soon (or ever).
The company could experience an operational setback that hits its profits. Or sentiment towards LSE shares could deteriorate, dragging the stock down.
However, I’m quite bullish on Volex myself. Given the company’s exposure to the EV and data centre industries, I think it has the potential to go much higher in the years ahead.
So I have been buying shares for my own portfolio recently. With the stock still more than 30% below its all-time highs, but now moving higher again, I think it’s a great time for investors to be building a position here.
