This FTSE 250 stock looks overvalued at a P/E ratio of 8.8

One FTSE 250 The stock that is doing really well right now is an industrial company Keller Group (LSE: KLR). Last year, it increased by almost 110%.

I still think the stock offers value. Right now, it seems very cheap.

US success

Keller focused on preparing the site for construction. And right now, it's having great success, especially in the US.

Across America today, the demand for Keller's services is high. This is because the country spends a lot of money on infrastructure, coastal fishing, semiconductor industries, and data centers.

Strong H1 results

This success was reflected in Keller's latest results for the half year ended 30 June. At the time, the company reported:

• 69% increase in net profit
• Return on equity is 28.4% – a 15-year high
• Free cash flow before interest and tax growth of 229%
• Dividend increase of 19% per share

Additionally, the company raised its guidance for the full year, saying it expects the group's performance to be “ahead materially” market expectations. It noted here that performance should be supported by its record order book of £1.6bn.

Keller achieved impressive results in the first half of the year, setting new records for the Group as a whole, as we continue to strengthen and build on the important step in operational and financial performance delivered in 2023.

CEO Michael Speakman

Low rating

Since these results, City analysts have been raising their earnings forecasts for Keller. We may see more expansion in the coming weeks and months.

However, currently, the consensus earnings per share forecast for 2024 is 183p. That means that at today's share price of 1,610p, the forward price-to-earnings (P/E) ratio here is just 8.8.

That's a low estimate. For reference, the average P/E ratio across the FTSE 250's is currently 13.4. So Keller trades at a huge discount to the index.

It is worth pointing out that analysts have been raising their price target for the stock recently. On 6 September, for example, analysts at Berenberg raised their target price from 1,750p to 1,900p. That's about 18% above the current share price.

A good profit

Yet the potential dividend yield isn't the only attraction of this stock. It also offers a decent dividend. In 2023, the company paid 45.2p per share in dividends. This year, it expects to increase its payout by 5%. That would take the distribution to 47.5p. At today's share price, that translates to a yield of less than 3%.

Is it worth the look?

Now, it's worth pointing out that Keller works in a cyclical industry. And industrial decline is a risk that cannot be ignored. Another risk is that some profits are short-lived. After all, this stock has done very well recently.

All things considered, I think this stock is attractive. I think it's worth considering today, especially for those who want to break away from technology and move into other areas of the market.