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Everyone likes a bargain. And it’s no different when it comes to buying shares. In fact, picking undervalued stocks is an effective strategy for building long-term wealth.
One way of identifying those with the most potential is to look at stocks that are trading close to their 52-week lows. In some cases, they may have fallen out of favour due to an operational or financial problem that won’t last forever. In these circumstances, a strong recovery could be on the cards. But what’s gone wrong with these five?
| Stock | 52-week share price low (p) | Current share price (p) | Market cap (£m) | % below 52-week high |
|---|---|---|---|---|
| Barratt Redrow | 285 | 285 | 4,059 | 41 |
| Hostelworld Group | 100 | 101 | 125 | 32 |
| On the Beach Group (LSE:OTB) | 165 | 167 | 242 | 45 |
| YouGov | 184 | 186 | 218 | 53 |
| WH Smith | 555 | 555 | 709 | 51 |
Delving deeper
Four of them are suffering as a result of the war in the Middle East.
Fears that rising oil prices will stoke inflation and potentially lead to interest rate rises is affecting Barratt Redrow, the FTSE 100 housebuilder.
Travel disruption is weighing heavily on the share prices of Hostelworld, the travel agent specialising in budget-friendly hostels and social accommodation, and WH Smith, the airport retailer. The latter’s also trying to rebuild investor confidence following a serious accounting error.
Similarly, yesterday (12 March), On the Beach warned that it had experienced a “significant slowdown” in demand for holidays, particularly in Turkey, Greece, Cyprus, and Egypt. As a result, the group was suspending its earnings guidance for the year ending 30 September 2026 (FY26).
In other words, it has no idea what the long-term impact will be. As the group itself says: “The timing of when the conflict will end and the shape of recovery in demand to these destinations are unknown.” Given the uncertainty, I don’t think it would be sensible to make an investment at this time.
An uncertain outlook
This is particularly unfortunate given that FY25 was the group’s best ever year and its impressive growth continued into the first two quarters of FY26. Until recently, most of the group’s key metrics were going in the right direction, including volumes, average booking values, and its margin.
It reported FY25 adjusted earnings per share (EPS) of 19p, which means its stock currently trades on just 8.8 times historic earnings. And it reconfirmed its medium-term EPS target of 38.7p. Impressively, it has no debt (other than leases) on its balance sheet.
The group’s invested heavily in its app and has recently submitted it to ChatGPT, which is opening a “new distribution channel” and demonstrating its“technology readiness for an AI-first world.”
As much as I like the group, it’s a red flag to me that it’s unable to predict what’s going to happen to its business. But when the position becomes clearer, I’ll revisit the investment case.
The outlier of our five is YouGov. There are no specific repercussions from what’s happening in the Middle East other than fears of a global economic slowdown. However, there are worries that artificial intelligence could damage its business.
Big gains?
Of course, just because a stock is close to its 52-week low doesn’t necessarily make it a bargain. A recovery can’t be guaranteed.
And I would have to do more research before deciding whether our five will bounce back. But if all of them returned to their one-year highs, someone investing £1,000 today would see it grow to £1,440. This shows the huge potential returns that could be made from successfully identifying value shares.
This story originally appeared on Motley Fool
