We often hear about FTSE shares when they hit headlines for their incredible price gains. But by then, the best profits are already behind us. It’s a classic case of chasing yesterday’s news.
But what if there’s a different way? What I’m looking for is high earnings growth and a share price that hasn’t yet caught up. And I’m not just checking earnings growth. If a company’s forward price-to-earnings (P/E) ratio’s too high, it may be a sign that analysts feel the earnings are already priced in.
So I want to find the hidden gems – companies banking high profits but still flying under the radar. With this in mind, I’ve identified two underappreciated FTSE shares with low valuations that still need to catch up with their recent earnings.
NewRiver REIT
First up, let’s check out NewRiver REIT (LSE: NRR). It’s a real estate investment trust (REIT) that buys and develops community-focused retail and leisure assets. Think pubs, shopping centres, retail warehouses, and high street stores. It’s a business model that’s been through the wringer, what with the pandemic and all, but it seems to have staged a pretty impressive comeback.
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The numbers tell a compelling story. Earnings soared from £3m in 2023 to £23.7m in 2024. That’s a huge leap, and it’s a testament to the business’s recovery. The company’s revenue is also estimated to reach £82.85m this year, up from £56.2m last year. What’s more, its forward P/E ratio’s a low 8.6, suggesting the price has yet to reflect the company’s improved profitability.
Analysts seem to agree — the 12-month price target for the stock envisions a 29.3% rise from its current level.
However, an investor must weigh up the risks. The property sector’s highly sensitive to economic conditions, and a downturn could send the stock back down again. If inflation remains high, it may struggle to make gains as borrowing costs increase.
But what really swung the scales for me is the 9.12% dividend yield. For that reason, I think it’s a share worth considering for income investors.
Mitchells & Butlers
Next on my list is Mitchells & Butlers (LSE: MAB). This is a big name in the UK’s pub and restaurant scene, operating a managed portfolio of popular brands including Toby Carvery, Harvester and All Bar One across the UK and Germany.
This July, it posted a 5% rise in third-quarter like for like sales, a solid sign of continued demand. And in the past 12 months, the company’s earnings increased by 276% compared to the same period a year ago, showing a remarkable financial turnaround.
On top of that, it’s got a healthy balance sheet, with its total equity almost double its debt, which gives me some comfort. Like NewRiver, its forward P/E ratio is low at 9, which suggests the price has lots of room to grow if it can maintain this trajectory.
Risks to consider? Always. While the top line’s impressive, Mitchells & Butlers’ net margins remain thin. The share price is down 6% in the past three months, so it must keep up its profitability. And it could slip if upcoming results disappoint.
Still, based on the low valuation and strong recent performance, I think it’s a promising FTSE share for value investors to check out.
