2 bargain UK stocks are trading at a price below their book value

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Global markets have plunged in recent weeks as inflationary pressures and recession risks weigh on confidence. However, that left several possible bargains among UK equities. How do I know if these are real bargains? Well, one way to value a stock is to compare its book value to the valuation of the company.

Book value is calculated by subtracting the company’s liabilities from its assets and, in theory, if a company went out of business and sold all of its assets, it would be left with its book value. When the book value is higher than the valuation, it is a sign that a stock may be undervalued. It’s not definitive, but it can be a very important measurement. After the recent market sell-off, here are two cheap UK stocks trading at less than the book value I would add to my portfolio.

Beaten Travel Stock

I am fan of National Express (LSE: NEX) and after its 35% drop over the past year, I think it’s now too cheap to miss. At the end of 2021, the group had a book value of £1.45bn, while it currently has a market capitalization of £1.1bn. This means that the stock price is trading at a 24% discount to its book value and signals that the stock is in high value territory.

The transport operator is today faced with several problems. Due to wage inflation in the United States, the group expects the recovery in its profitability to be less than the growth in its turnover. Margins are expected to be only around 7% in 2022, below the 9% target. Longer term, if oil prices remain high, it could drive up the company’s costs even further and put more pressure on margins.

However, I remain optimistic about the future of this UK stock. On the one hand, with the current cost of living crisis, it is likely that consumers will want to switch to lower cost transport. National Express might be one of the best options.

Additionally, the group is confident it can generate £1.25bn of free cash flow between 2022 and 2027. This money will partly be reinvested in growing returns for shareholders, and the dividend is expected to be reinstated after results for fiscal year 2022. For these reasons, I will continue to add National Express stocks to my portfolio.

UK Very Short Action

ASOS (LSE: ASC) is another company that is trading at a price below its book value. As of February 28, the stock had a book value of £1.05 billion, but a market capitalization of £900 million. This means that the shares are currently trading at a 14% discount to book value, implying trading territory.

The current macroeconomic environment, however, has caused problems for the fast fashion retailer. For example, he recently lowered the profit forecast from £125m to between £20m and £60m. This saw the share price plunge around 30% on the day. It also explains why ASOS is one of the most shorted UK stocks, second only to cineworld. This is another bearish sign.

Despite these concerns, I’m still tempted to open a small position at ASOS. For example, as noted Barclaysthere is “green sprouts in the american marketwhere the company reported 21% year-over-year sales growth. With a customer base of 27 million, I also feel its long-term future is bright, especially as inflationary pressures begin to ease. Therefore, I can use the group’s discount on its book value as a sign of purchase.

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