This FTSE 250 stock looks great value on a P/E ratio of 8.8

This FTSE 250 industrial company’s been generating big returns for investors lately. But its shares still look very cheap today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand of person putting wood cube block with word VALUE on wooden table

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One FTSE 250 stock that’s doing really well right now is industrial company Keller Group (LSE: KLR). Over the last year, it’s risen about 110%.

I still think the stock offers value though. Currently, it looks very cheap.

Created with Highcharts 11.4.3Keller Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

US success

Keller specialises in preparing ground to be built on. And right now, it’s having a lot of success, particularly in the US.

Should you invest £1,000 in Ashtead Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ashtead Group Plc made the list?

See the 6 stocks

Across America today, demand for Keller’s services is high. This is due to the fact that the country’s spending a lot of money on infrastructure, onshoring, semiconductor plants, and data centres.

Strong H1 results

This success was reflected in Keller’s recent results for the half-year ended 30 June. For the period, the company reported:

  • Underlying profit growth of 69%
  • Underlying return on capital employed of 28.4% – the highest level for 15 years
  • Free cash flow before interest and tax growth of 229%
  • A 19% increase in dividend per share

Additionally, the company raised its guidance for the full year, saying it expects group performance to be “materially ahead” of market expectations. It noted here that performance should be underpinned by its record order book of £1.6bn.

Keller achieved outstanding results in the first half of the year, setting new records across the Group, as we continued to sustain and build on the material step-up in operational and financial performance delivered in 2023.

CEO Michael Speakman

Low valuation

Since these results, City analysts have naturally been raising their earnings forecasts for Keller. We may see more increases in the weeks and months ahead.

However, right now, the consensus earnings per share forecast for 2024 is 183p. That means that at today’s share price of 1,610p, the forward-looking price-to-earnings (P/E) ratio here is just 8.8.

That’s a low valuation. For reference, the median P/E ratio across the FTSE 250’s currently 13.4. So Keller trades at a large discount to the index.

It’s worth pointing out that analysts have been raising their price targets for the stock recently. On 6 September, for example, analysts at Berenberg increased their target price from 1,750p to 1,900p. That’s around 18% above the current share price.

Nice dividend

Yet potential share price gains aren’t the only appeal of this stock. It also offers a pretty decent dividend. For 2023, the company paid out 45.2p per share in dividends. This year, it expects to increase its payout by 5%. That would take the distribution to 47.5p. At today’s share price, that translates to a yield of just under 3%.

Worth a look?

Now, it’s worth pointing out that Keller operates in a cyclical industry. And an industry downturn’s a risk that can’t be ignored. Another risk is some profit taking in the short term. After all, this stock’s done very well recently.

All things considered, I think this stock has appeal. I reckon it’s worth considering today, particularly for those looking to diversify away from technology into other areas of the market.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon 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.

More on Investing Articles

Young black woman using a mobile phone in a transport facility
Investing Articles

3 FTSE 100 safe haven stocks to consider as trade wars bite

I'm confident in the long-term outlook for the FTSE index of stocks. But these blue chips may protect investors from…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »

Investing Articles

These FTSE shares may offer some safety as Trump slaps tariffs on trading partners

FTSE shares moved lower on 3 April, after US President Donald Trump introduced hefty tariffs on its trading partners. These…

Read more »

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With value investing back in vogue, I’m taking a leaf out of Warren Buffett’s playbook

With tariffs and trade wars resulting in heightened market volatility, Andrew Mackie takes comfort in Warren Buffett’s words of wisdom.

Read more »