Image source: Getty Images
The FTSE 250 is awash with undervalued stocks. Personally I put this down to a combination of factors, including concern about the UK economy, a lack of available data for retail investors, and the outperformance of US stocks, which draws capital stateside. This can mean stocks need to be exceptional in order to stand out to investors. Currys (LSE:CURY) is one such stock that has stood out. The shares are up 89% over 12 months and over 100% from their nadir. Despite this, it still continues to trade below its pandemic-era highs.
What’s behind the rise?
Currys stock has surged 89% over the past year, reflecting a significant recovery driven by improving financial performance and strategic positioning. The company’s Q3 trading update highlighted a 2% rise in like-for-like sales during the Christmas period, with strong demand for gaming and premium computing products offsetting weaker TV sales. Notably, gross margins improved due to disciplined inventory management and growth in higher-margin services like credit and solutions.
Moreover, management’s upwardly revised profit guidance, now projecting adjusted pre-tax profits of £145m-£155m, exceeded market expectations. Additionally, reduced costs in depreciation, amortisation, and leasing further supported this outlook. Investors were also encouraged by the announcement of a dividend return after a two-year hiatus.
Looking ahead, Currys’ dominant market share in AI-enabled laptops positions it well for future upgrade cycles, such as the 2025 Windows refresh. This strategic advantage underpins optimism for sustained growth despite near-term challenges.
Still good value
The stock remains attractively valued despite its impressive recovery. Currently, it trades at a trailing price-to-sales (P/S) ratio of 0.1 and a price-to-earnings (P/E) ratio of just 5.2, signalling deep value compared to the global consumer discretionary sector median P/E of 18.6.
Forward-looking metrics also highlight its affordability. While the forward P/E is expected to rise to 10.8 times due to one-time earnings in financial year 2024, this figure still represents a significant discount to the sector average.
Importantly, Currys boasts a forward price-to-earrings-to-growth (PEG) ratio of 0.4, well below the sector median of 1.7. This reflects its incredibly robust projected earnings per share growth of 29.7% throughout the medium term.
The bottom line on Currys
Analysts are optimistic, with the average price target sitting at 119.5p, around 30% higher than the current share price. In fact, the highest share price target of 170p is a full 80% higher than the current market value.
Nonetheless, there are risks to bear in mind. One of which is the strength, or lack of strength, of the UK economy. Interest rates should continue to fall, but any upshift in inflation and a plateauing of interest rates could seriously harm consumer sentiment and potentially dent sales.
However, I like stocks with momentum and this is certainly one of them. It’s one I’m going to consider buying. There’s clearly some evidence it could push a lot higher.
