While the stock market has had a strong run, there are still plenty of UK shares that look extremely undervalued. This is particularly true in the mid-cap and small-cap areas of the market, where companies are less well known and markets tend to be a little more ‘inefficient’.
Recently, I scanned the UK market for undervalued stocks that City analysts are very bullish on right now. Here are two names that came up.
Let’s start with Yu Group (LSE: YU.). It’s an independent supplier of gas and electricity to small- and medium-sized (SME) businesses across the UK (and a smart metre installer).
It’s been growing at a rapid rate in recent years (three-year revenue growth of 316%). But this doesn’t seem to be reflected in the valuation.
At present, Yu has a forward-looking price-to-earnings (P/E) ratio of just 7.2 and a trailing free cash flow yield of 23%. These metrics suggest the stock’s a bargain right now.
Looking at analysts’ share price forecasts, they see the potential for strong gains over the next 12 months, or so. Currently, the average price target is 2,276p, which is roughly 50% above the current share price.
I don’t think that price target’s unreasonable. That’s because it would still only take the P/E ratio to 10 using next year’s earnings per share forecast.
Of course, there are no guarantees that it will get there. A below-par trading update could send the share price down.
Recent updates have been pretty good however. For example, in September, the company posted a 14% year-on-year increase in pre-tax profit for the first half of 2025.
So I think the stock’s worth a closer look. A dividend yield of around 4.7% adds weight to the investment case.
Another UK stock that looks very cheap right now is Serabi Gold (LSE: SRB), the gold producer that operates in Brazil.
Over the last year, gold prices have surged. As a result, gold mining companies – many of which have per-ounce production costs that are well below current selling prices – are seeing huge increases in profitability.
That’s certainly the case here. This year, Serabi’s net profit is expected to be around $50m versus $28m last year. This surge in profits isn’t reflected in the valuation at all however. Currently, this stock sports an incredibly low P/E ratio of just 4.8.
What’s even more crazy is the price-to-earnings-to-growth (PEG) ratio. This is about 0.06, which is almost unheard of (a ratio of below one’s good).
Now, analysts don’t expect the stock to remain this cheap for long. Currently, the average price target is 368p – almost 50% above the current share price.