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It’s well-known that UK stocks are currently undervalued compared to their international counterparts, especially in the thriving New York market. However, Goldman Sachs reveals just how cheap they are!
As per analysts at the bank, shares listed on the London Stock Exchange are now trading at a staggering 52% discount compared to US stocks. In some sectors, the discount is even greater. Quite alarming!
Worrying Trend
While I won’t delve deeply into the reasons behind this situation (there’s enough material for a whole book), the saying, “The US innovates, Europe regulates,” encapsulates it succinctly.
In brief, excessive regulations and taxes—particularly the stamp duty on UK share purchases—contribute to reduced liquidity and subsequently lower valuations.
The fallout is concerning. In 2024, 88 companies have either delisted or shifted their primary listing away from London’s main market, with just 18 new listings entering the space. Bloomberg indicates that this will mark the highest number of UK delistings since 2010.
The equipment rental firm Ashtead Group is the latest to exit London for New York, even going so far as to rename itself as Sunbelt Rentals, reflecting its new base of operations.
Need for Wiser Decisions
Although some reforms have been implemented, it’s clear that further measures are essential. For instance, Wise—a genuine fintech innovator listed in London with a market cap of £10.5bn since 2021—isn’t even included in the FTSE 100!
From my understanding, Wise would need to actively apply for a category that meets enhanced regulatory standards, which may discourage them from engaging in the process to join the FTSE.
Sadly, it seems that a company of larger stature than Ashtead is required for policymakers to take decisive action. If oil magnate Shell—the UK’s second-largest publicly listed company—were to leave, that could serve as a significant catalyst for change.
Shell has frequently traded at a discount compared to its US-listed rivals. Meanwhile, with Donald Trump advocating for increased drilling in the US, the contrasting direction in Europe reinforces the idea that relocating could be a strategic move for Shell and its shareholders over the long term.
Abundant Opportunities
Of course, a company’s potential for global expansion hinges more on its strategic vision and competitive stance rather than its listing location.
The flip side to all this is that there are likely numerous undervalued opportunities in the UK market at present.
One stock that appears particularly undervalued right now is JD Sports Fashion (LSE: JD). Its share price has plummeted by 41% year to date.
Like many retailers, JD Sports has suffered from lower consumer spending, and challenges faced by its key partner, Nike, have certainly compounded those issues. Nike’s products typically yield higher margins, so ongoing struggles at the US sportswear giant remain problematic.
Nonetheless, the stock is currently trading at a forward price-to-earnings (P/E) ratio of just 6.6. While there are risks tied to consumer spending and Nike, that extremely low valuation seems excessively discounted to me.
JD Sports boasts a robust brand, a profitable business model, and a growing global (and online) presence, aided by strategic partnerships with Nike and Adidas, giving it an edge over competitors.
I believe this remarkably discounted FTSE 100 stock deserves consideration for investments looking towards 2025 and beyond. I have recently added JD Sports shares to my own ISA portfolio.
