With P/E ratios below 7, are these undervalued FTSE shares bargains — or value traps?

When looking for low cost FTSE shares, many buyers lean on well-known valuation metrics such because the price-to-earnings (P/E) ratio or the price-to-book (P/B) ratio. These figures can provide a fast snapshot of how the market presently values a enterprise relative to its earnings or property. 

A low P/E may trace at a discount — or it may very well be flashing a warning signal. That’s as a result of these numbers alone don’t assure progress or a turnaround. They’re anchored in present or forecast earnings that rely upon wider financial circumstances, demand, provide chains and client habits. In different phrases, at the moment’s ‘low cost’ inventory may keep low cost if earnings don’t get well.

Two FTSE shares presently stand out to me with P/E ratios below 7. However do they signify real bargains, or potential worth traps?

The struggling non-public label items big

McBride (LSE: MCB) is Europe’s largest provider of personal label and contract-manufactured family cleansing merchandise. From detergents to disinfectants, its items fill the cabinets of main supermarkets below own-brand labels.

Sadly, the corporate’s fortunes have plateaued. The share worth tumbled 13% this week after its full-year buying and selling replace on 16 July revealed that working revenue will solely be in step with expectations, largely as a result of a slowdown in demand for personal label merchandise.

This follows a worth enhance again in January, when McBride introduced it might resume paying dividends. That’s a promising growth that provides vital earnings worth to the inventory.

After the most recent sell-off, it now trades on a rock-bottom P/E ratio of 5.8. That may appear tempting, however the comparatively excessive P/B ratio of two.8 tells a much less snug story. 

What’s extra, the ahead P/E has climbed to six.3, implying earnings are anticipated to say no additional.

If the group can’t reignite demand or carve out new progress avenues, it’s laborious to see the share worth staging a significant comeback. For now, I’d contemplate steering clear till administration delivers a workable turnaround technique.

A strong basis

In contrast, I feel Keller Group‘s (LSE: KLR) an undervalued inventory value contemplating. The FTSE 250 geotechnical specialist handles piling, grouting and floor engineering tasks throughout the globe. Regardless of a subdued efficiency this 12 months, the shares are nonetheless up a formidable 124% over 5 years.

Keller seems attractively valued, with a present P/E of seven.2 that drops to six.8 on a ahead foundation, suggesting the market expects earnings to enhance. That view’s supported by earnings per share rising a hefty 60% 12 months on 12 months.

Revenue margins are modest, however a strong return on fairness (ROE) of 25.6% underscores administration’s effectivity. In the meantime, Keller presents a 3.55% dividend yield with a low 25% payout ratio. With over 20 years of uninterrupted dividend funds, it has proven resilience by a number of cycles.

After all, dangers stay. CEO Michael Speakman steps down in August, which might unsettle management. Deutsche Financial institution additionally lately downgraded the inventory to Maintain, trimming its worth goal by practically 8%.

My view

For me, McBride seems like a price entice — a low P/E masking weak underlying demand. Keller, alternatively, appears genuinely undervalued, with a observe document of rising earnings, dependable dividends and a ahead outlook that also factors upward. 

Amongst FTSE shares buying and selling on low multiples, that’s precisely the mixture I search for.