Investing in cheap UK shares is a great way to try and beat the market — achieving ‘alpha’ as it’s known. And let’s face it, we all want to beat the market and see our money grow as fast as possible.
So, today I’m detailing three stocks that analysts believe are massively undervalued. And while analysts can get it wrong, we’re using consensus data which is typically more accurate.
Let’s look at the stocks.
Card Factory
From an operational standpoint, it’s hard to see how Card Factory (LSE:CARD) is a winner. Its business model appears outdated with over 1,000 stores in the UK. The British high street hasn’t performed well for years and its products aren’t exactly high-margin.
And that’s where the risk comes in. If the employment and energy costs continue to rise, high street businesses could suffer more.
However, the company keeps chugging along and now has an online card outlet having bought Funky Pigeon from WH Smith. Margins are decent, but nothing to shout about. The operating margin is around 13% — above industry norms.
The really interesting part is the value. It trades at 6.8 times forward earnings with this figure falling to 6.2 times for 2026. The dividend yield is also sizeable at 5.5% rising to nearly 6% in 2026. Coverage — how many times the company can pay the dividend from net income — is excellent at more than 2.5 times.
Analysts think it’s undervalued by around 61%. It’s certainly worth considering.
Jet2
Next up is low-cost airline Jet2 (LSE:JET2). The really interesting bit here is the balance sheet. Not many airlines have a net cash position but Jet2 has £2.1bn in net cash. That’s only £500m less than the market cap.
This statistic skews a lot of the metrics, but it’s an important one. While this net cash figure includes customer deposits, it means that Jet2 is trading at just one-and-a-bit times net income when adjusted for net cash.
Of course, not everything has been going in the company’s favour recently. Employment costs are rising and late booking patterns have damaged visibility leading Jet2 to reduce winter capacity.
However, I believe it’s oversold and worth considering. Analysts suggest it’s undervalued by 47%.
Arbuthnot Banking
While well-known high street banks have been surging over the past two years, Arbuthnot Banking Group (LSE:ARBB) hasn’t.
It’s much smaller than its FTSE 100 peers, and that reflects some of the discount. Banks are perceived to be safer when they’re bigger. Another issue for investors is the spread between the buying and selling price.
However, there’s a lot to like. The stock trades at eight time forward earnings — falling to less than six times through to 2027. The dividend yield is 6% and the payments look set to rise in the coming years. The price-to-book ratio is roughly half of some of its larger peers.
The share price target is an incredible 79% above the current price. Like the analysts, I certainly believe it’s worth considering.
