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The price-to-earnings ratio (P/E) is a practical tool used to get a sense of the relative value of a stock at a given price. Usually, a high ratio means that the stock may be overvalued. The flipside is also true, that the ratio is low can give me an undervalued opportunity. With all that in mind, here are two FTSE 100 stocks that have a low current ratio.
Banking on the basics
The first is Barclays (LSE:BARC) with a P/E of just 4.7. Share prices have fallen in recent weeks following public banking sector concerns about stability. However, over the broader one-year period, the stock was flat.
A 16% drop in the past month pushed the stock to a 52-week low. But it seems the worst of the selling is now over.
To be clear, I do not agree with the market-entering sell-off in the big banks, especially Barclays. The bank is diversified by generating income from various sources, ranging from retail customers to corporate clients and institutional funds. It has operations in 40 countries.
I am very interested in picking up some Barclays shares over the coming months. I’m just waiting to see if there is any short-term weakness in the next week or so.
One risk I’m aware of is the trading division, which had a costly error of several hundred million dollars in its last quarterly update. Senior leadership must apply risk management when it comes to these areas.
A increases in energy space
With a P/E ratio of 5.12, Centrist (LSE:CNA) is also potentially undervalued. The stock has risen 32% over the past year. In contrast to Barclays, Centrica shares recently touched a 52-week high.
Why is business so good? The company pointed “Strong gas production and energy yield against a backdrop of higher commodity prices and strong management of increased commodity volatility”.
To put this into perspective, preliminary results for 2022 show an adjusted operating profit of £2,823m. This is in contrast to the 2021 figure of £392m. The 2022 figure does not include the value of Spirit Energy’s disposed assets.
One concern I have is whether this kind of performance can be replicated going forward. I expect energy prices to be under control again, and could fall significantly under certain conditions (such as peace in Ukraine/decreasing tensions with Russia).
But with last year’s performance, the company has a good cash position that can be used for long-term growth through investment. This could provide a catalyst for future market share growth.
Ultimately, the stock is looking good even with the recent jump. I’m considering adding it to my portfolio after Barclays when I have some more free cash.
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