This £3 value stock could soar in the AI boom
Picture supply: Getty Photographs
The UK inventory market has massively underperformed in recent times. So there are lots of worth shares on the London Inventory Change proper now.
One I’ve purchased for my very own portfolio is Volex (LSE: VLX). Within the years forward, I reckon the bogus intelligence (AI) increase may ship this inventory a lot greater.
An information centre play
A technique I’ve been seeking to play the AI theme is thru the build-out of information centres. These present the pc processing energy, together with the information space for storing, required to run AI functions.
That is the place Volex is available in. As a producing firm, it generates a big chunk of its revenues from creating energy cords and knowledge transmission cables for knowledge centres.
So it appears to be like nicely positioned to profit from the build-out of those amenities within the years forward.
It’s value noting that in line with Prescient & Strategic Intelligence, the worldwide knowledge centre market might be value round $620bn by 2030, up from $340bn at present (development of 10.5% a 12 months).
Given this development outlook, I believe the long run’s very vivid for Volex.
![](https://cdn-dfoll.nitrocdn.com/tSUsPcuDMaCDjkKGRxswpkeBalYirhyT/assets/images/optimized/rev-6b6fbab/www.fool.co.uk/wp-content/uploads/2024/05/Volex-data-centre-459x373.png)
Surging revenues
Already, Volex is having lots of success on the information centre entrance. For the 26 weeks to 1 October 2023, for instance, revenues in its Advanced Industrial Expertise division grew by an enormous 30.1% on an natural foundation.
In the meantime, in a current buying and selling replace, the corporate stated this division delivered “extraordinarily robust development” for the complete monetary 12 months (ended 31 March).
The corporate famous within the replace that the expansion from this division was resulting from elevated gross sales of high-speed knowledge centre cables.
Rising funding in synthetic intelligence know-how requires intensive knowledge processing, an software that’s ideally suited to the cutting-edge merchandise that Volex has developed.
Volex H1 2024 report
An undervalued inventory
Nevertheless, regardless of this momentum and the enticing development outlook, Volex shares at the moment have a really low valuation.
With analysts forecasting earnings per share of 36.1 cents for the 12 months ending 31 March 2025, the price-to-earnings (P/E) ratio right here is simply 12.
I consider the corporate’s undervalued at that earnings a number of. For my part, I consider its P/E ratio must be someplace between 15 and 20 (which means substantial share value features from right here).
Plenty of potential
It’s value mentioning that Volex additionally makes merchandise for the electrical automobile (EV), healthcare, and client electricals markets. I like this enterprise diversification. Nevertheless, a danger is that any of those markets may face a slowdown.
We’ve not too long ago seen this situation with the EV market. In H1, Volex’s EV revenues really declined.
One other danger to contemplate is acquisitions. It is a firm that likes to purchase smaller manufacturing companies. The issue is acquisitions don’t all the time work out.
Total although, I like the danger/reward proposition. With a low valuation, and development coming from the worldwide knowledge centre construct out, I believe this worth inventory has the potential to generate enticing returns within the years forward.