I’m searching for the best dirt-cheap UK stocks to add to my investment portfolio. Here are two that have attracted my attention recently.
In great shape
Intense competition in the fitness industry could pose a significant threat to The Gym Group (LSE: GYM). But I think the rate at which the entire sector is predicted to grow might offset this problem and still help this cheap UK share to deliver mighty profits growth. Analysts at Technavio think the global gym and health club market will grow by more than $100bn between now and 2025.
I’m particularly encouraged by The Gym Group’s focus on the cheaper end of the market. This is enabling it to exploit the rising importance of value in the mind of consumers. It might also serve the company well if the cost of living keeps on rising.
Membership numbers at The Gym Group have rocketed since Covid-19 restrictions were eased in the spring. It had 730,000 members on its books as of June, up from 547,000 four months earlier.
The company also has plans to open 40 new gyms between the middle of 2021 and the end of next year, to capitalise on its momentum. And it embarked on a £30.3m equity raise in July to help it execute its programme.
City brokers expect GYM to break back into profit in 2022 following two years of coronavirus-related turbulence. But be aware that, at its current price of 275p per share, current projections leave the company trading on an elevated P/E ratio of 69 times for next year.
This sort of pumped up valuation could prompt a share price crash if trading conditions suddenly worsen again. Say, for example, if the pandemic worsens considerably and gyms have to be closed down once more.
Another cheap UK share on my radar
As a long-term investor however, I’m prepared to look past these immediate threats and consider the returns The Gym Group could provide me over a number of years. It’s why I’m also thinking about buying Premier Foods (LSE: PFD) for my shares portfolio today.
I reckon this dirt-cheap UK share is an attractive buy for several reasons. Firstly, it operates in the highly-defensive food production market. Therefore it can expect sales to remain stable, even if broader economic conditions, and consequently broader consumer spending power, sink.
Secondly, it owns a broad array of beloved food brands, from Mr Kipling cakes and Paxo stuffing to Sharwood’s Indian cooking sauces. These labels have exceptional pricing power that allow Premier Foods to raise prices at all points in the economic cycle.
And finally, at 109p per share, the company trades on a bargain-basement forward P/E ratio of 9.5 times. I think this could be one of the best cheap UK shares to buy today, despite the danger posed by rising input costs in the short-to-medium term.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended The Gym Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.