The stock market may be overheating, but these shares don’t look overvalued

With the US trade outlook shifting under renewed tariff threats from Donald Trump, investors may be rightly concerned that global stock markets are overheating. After all, tech valuations in particular look stretched, and the S&P 500 has surged well beyond its historical earnings multiple.

However, this just means we need to look harder for undervalued stocks. With that in mind, here are two small-cap stocks that don’t appear undervalued.

Synectics: solid growth, attractive value

Synectics (LSE:SNX) delivered a 35% rise in first-half revenue to £35.5m and a 59% jump in adjusted earnings per share (EPS) to 16.4p. And despite the stock surging over the past 12 months, it’s now trading at just 12.2 times forward earnings.

That multiple falls to 9.5 times by 2027, reflecting continued earnings growth expectations. At the same time, net cash is already £12.1m — a substantial figure for a company with a £52m market-cap. Forecasts for net cash suggest it will hit £12.4m by 2027, although I’d expect it to hit that figure quite soon.

Meanwhile, the dividend yield’s set to climb steadily from 2.3% to 3.3%, reinforcing shareholder value. Contracts with West Midlands Police, a Southeast Asian gaming resort, and Stagecoach, alongside new market entries in the Philippines and UAE, support its expansion story.

A net cash-adjusted price-to-earnings-to-growth (PEG) calculation also supports my bullishness. It’s trading at 12.2 times forward earnings, and analysts expected CAGR earnings growth of 13% (from 16.4p in 2025 to an estimated 22.4p in 2027). Adjusting for net cash (23% of market-cap), the PEG ratio’s roughly 0.72. That’s a clear sign of undervaluation and we haven’t even accounted for the dividends.

However, risks include contract concentration and exposure to cyclical public infrastructure spending. Despite this, with a clean balance sheet and strong valuation picture, it’s a stock I believe is worth considering. I am.

Tracsis: cash rich and expanding earnings

After a difficult 2024, Tracsis (LSE:TRCS) appears to be back on track. Forecasts suggest a return to growth, with earnings per share expected to recover from 1.6p in 2024 to 11.2p in 2027. At the same time, the enterprise value-to-EBITDA is forecast to fall from 6.97 times in 2025 to just 4.93 times by 2027. For a software-driven transport optimisation business with critical infrastructure exposure, this could be an undervaluation.

The company has net cash of £22.9m forecast for 2025, rising to £39.5m by 2027. That’s over a third of its £109m market-cap. Revenue’s expected to grow modestly, while EBITDA margins are holding firm. Dividends are modest, but growing.

The net cash-adjusted PEG’s also attractive. The forward P/E is 42 times, and CAGR EPS is 60% (from 1.6p to 11.2p). Net cash is 21% of the market cap, and this gives us a PEG ratio of 0.55 times. That’s typically very good for software.

Risks remain, especially around earnings volatility and dependence on UK infrastructure spending. However, I believe there’s a lot to like. It’s worth thinking about and it’s on my list.

The post The stock market may be overheating, but these shares don’t look overvalued appeared first on The Motley Fool UK.

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James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Tracsis Plc. 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.

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