Small-cap UK shares continue to look cheap. In this area of the market, there are a lot of stocks trading at rock-bottom valuations right now.
Here, I’m going to highlight three UK small-caps that I reckon are in bargain basement territory at present. I think these shares are worth considering today as the value on offer could quickly disappear if investor sentiment picks up.
A P/E ratio of 7.4
First up we have Renold (LSE: RNO). It’s an international supplier of industrial chains and related power transmission products.
This stock looks very undervalued to me. Currently, it trades on a forward-looking price-to-earnings (P/E) ratio of just 7.4.
Given that this company generates a large chunk of its revenues from the US (where construction activity is likely to be buoyant in the years ahead due to government spending on infrastructure) and that it has a strong order book, I reckon that earnings multiple is too low.
Now, it’s worth pointing out that Renold has a bit of debt on its balance sheet. This is a risk.
At the current valuation, however, I like risk/reward skew. It’s worth noting that the company just resumed paying dividends, which suggests that management is confident about the future and not so worried about the debt.
Growth at an attractive price
Next we have Team17 (LSE: TM17). It’s a British video game and educational app developer.
Currently, the P/E ratio here is about 12. I think that’s great value.
This is a company with an excellent growth track record. Over the last five years, its revenues have climbed by a whopping 270% to £159m.
Meanwhile, management is optimistic about the future. “Looking ahead, there is significant growth potential in our core markets,” said CEO Steve Bell in the company’s recent H1 results.
Of course, video gaming is a dynamic market and there’s no guarantee that Team17 will continue to have success with its games (which include Monster Sanctuary, Worms, and Overcooked: All You Can Eat).
Again though, at the current valuation, I think the risk/reward proposition here is attractive.
Significant long-term potential
Finally, check out Volex (LSE: VLX). It’s a manufacturer of critical power and data transmission products.
I hold this stock myself and one reason for this is that I reckon it’s undervalued. Currently, the P/E ratio here is just 12.9.
Given that Volex makes products for the fast-growing electric vehicle (EV) and data centre markets, and is enjoying strong growth itself (helped by key acquisitions), I reckon that multiple is on the low side.
It’s worth noting that the company recently advised that it’s performing well. In the first quarter of its financial year that ends on 31 March 2025, it registered year-on-year constant currency organic revenue growth of 9%, driven by “particularly strong performances” in the EV and data centre sectors.
Now, one issue with this company is that some of its markets can be a little cyclical at times. For example, last year, the EV market was quite weak.
Given this cyclicality, I think the key here is to take a long term view. Over the next decade, the EV and data centre markets are poised for significant growth, so Volex is well placed to do well.
This post was originally published on Motley Fool
