Cheap shares can power our portfolios forward. So, let’s have a look at two companies that could be fundamentally undervalued by the market and may experience supportive trends from the emerging macroeconomic environment.
Pawn shops
EZCORP (NASDAQ:EZPW) could be an intriguing investment opportunity. The company operates in the pawn industry, which typically performs well during economic uncertainty.
With Trump’s tariffs and recession risks potentially growing, demand for pawn services may rise as consumers seek alternative financing options. EZCORP’s strong fiscal 2024 performance, including record revenues and a 20% increase in adjusted diluted earnings per share (EPS), highlights its resilience and growth potential.
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The stock appears to be priced attractively, with a price-to-earnings (P/E) ratio of 13.7 times for 2024, dropping to an estimated 9.2 times by 2028. This is significantly lower than the index average, suggesting undervaluation.
In line with this, consensus EPS growth rates are solid, with a projected increase of 15.62% by September 2025 and steady growth thereafter. The company’s expansion into Latin America also provides diversification and growth opportunities.
However, like any investment, risks remain. EZCORP has a high net debt position, with $569.3m in total debt against $174.51m in cash. This leverage could limit financial flexibility.
For patient investors, EZCORP may offer a compelling mix of value and growth, especially during economic turbulence. It’s actually a stock I’ve recently added to my portfolio.
A cheap European airline
I keep banging on about Jet2 (LSE:JET2) at the moment. But I’m a big fan of the stock. It’s currently trading at an enterprise value-to-EBITDA (earnings before interest, taxation, depreciation, and amortisation) ratio of 0.85, with some of its peers trading at a 400% premium to this. It’s got a lot of cash — £2.3bn in net cash — providing financial flexibility.
Of course, there are risks. The company faces rising costs, including higher wages, National Insurance contributions, and sustainable aviation fuel mandates, which could pressure margins. However, I’m willing to overlook some of these due to its incredibly strong relative valuation.
What’s more, I believe we may see some supportive trends in fuel prices. Aviation fuel typically represents around 25% of costs for airlines, and thankfully, fuel prices have retreated a lot from their highs. This impacts lower margin airlines and tour operators like Jet2 more than others. Brent crude prices sank after Trump’s tariffs. This may boost earnings slightly through the coming quarters — although the company does hedge this cost, like its peers.
Investors will want to keep an eye on its fleet transformation programme. Jet2 has committed to replacing older aircraft with up to 146 Airbus A321neo planes. This will offer increased operational efficiency. What’s more, the business plans to maintain annual capital expenditure at £833m. As a ratio, this sits below industry averages.
It’s a stock I’ve been topping up on. It might be low on momentum, but it’s my favourite UK stock right now.
