Even though the FTSE 100 and S&P 500 have recently hit fresh record highs, it doesn’t mean there are no cheap shares left to buy. The beauty of the stock market is that there’s such a wide range of listed companies out there. When searching for potentially undervalued stocks, I’ve identified a couple that I believe are worthy of consideration.
A niche financing firm
First up is Distribution Finance Capital Holdings (LSE:DFCH). With a market cap of £85m and a share price of 52p, DFCH is technically a penny stock. Given the company’s small size, it’s easier to understand why it could fly under the radar for some investors.
Over the past year, the stock is up 72%. The specialist bank focuses on providing working capital and inventory finance solutions to businesses. The more it can lend out, the more money it earns by adding a spread to the loanable rate charged.
Therefore, when the H1 2025 results showed that the loan book size had jumped 21% compared to last year, it doesn’t surprise me that the share price has performed well since then. The report stated that it was growing due to capturing more market share and the introduction of new lending products.
I believe the stock is undervalued because its price-to-earnings ratio is 8.81. This is below the fair value figure of 10 I use. Moreover, I believe it’s cheap as the share price also doesn’t accurately reflect the strong momentum the business is currently experiencing. Even with the recent rally, it isn’t getting that much attention from the media. If this changes, I think the stock could surge.
However, one risk is related to credit quality. If the UK economy struggles in the coming year, more companies might default on their loans. This would be a negative for the company.
Lighting the path ahead
Another stock to consider is RW Thorpe (LSE:TFW). The company designs, manufactures, and supplies professional lighting systems. It typically sells lighting systems to businesses, often with recurring or replacement deals, helping to keep a steady stream of revenue.
Over the past year, the stock is down 18%. One factor contributing to this was the full-year results released in October, which underwhelmed investors. Revenue was basically unchanged versus the previous year, which, for a company with strong historic growth, wasn’t great. This was blamed on certain divisions, such as Germany, being weak. This remains a risk in the future.
I think the short-term negativity towards the share price has made it undervalued. Despite the headline revenue figure grabbing attention, the profit before tax actually rose by 5.9%. This demonstrates that the business has effective cost control, highlighting sound management decisions. The bottom line is the earnings per share increased, but the share price has fallen close to five-year lows, making it cheap in my book.
Another reason I think it’s good value is because the company has increased its ordinary dividend for 22 consecutive years. Although the dividend yield isn’t exceptionally high at 2.46%, for income-oriented investors, this consistency is a plus, especially when combined with special dividends. I’m surprised a company with such a strong track record here has flown under the radar so far.
I think both companies look good value for different reasons, and are worthy of consideration by investors.
