As the UK stock market hits new highs, this dirt cheap FTSE share looks promising

Despite ongoing fears about a stock market crash, the FTSE 100 continues to break new highs. Last week Thursday (23 October), it once again cracked a new record above 9,570 points.

This marked another milestone in what’s been an impressive rally, supported by strong earnings, rising energy prices, and positive investor sentiment amid a stable inflation outlook.

What’s driving the rally?

The stellar performance has been boosted primarily by surging oil stocks such as BP and Shell, which gained after the US imposed new sanctions on Russian oil majors Rosneft and Lukoil. These geopolitical developments lifted crude prices by roughly 5%, directly benefitting the energy-heavy FTSE 100 index.

Blue-chip companies like the London Stock Exchange Group and Rentokil also reported upbeat earnings, further fuelling the rally.

But while many big-name shares are soaring, I like the look of one small FTSE share that’s been quietly making gains — Marston’s (LSE: MARS). This specialist brewery and pub business jumped 12.5% last week after a strong profit outlook.

As someone who appreciates a good pub on a summer day, I decided to find out if there’s an opportunity here.

Let’s take a closer look.

A promising growth stock

While Marston’s itself may not be a household name in the UK, its wide selection of well-established pub brands and beer products are a frequent part of everyday life. Recently, the company has been in the news for a surprisingly optimistic outlook, with forecasts indicating that its annual profit will surpass market estimates, signalling a potential turnaround after a challenging period.

This optimistic projection contributed to Marston’s being the top gainer on the FTSE small-cap index recently, reflecting investor confidence in its recovery prospects.

Despite the positive forecast, it appears undervalued based on its forward price-to-earnings ratio of 5.84, which is significantly below the market average. This suggests that the stock could be a bargain for value-focused investors.

The growth is undoubtedly welcome, considering its balance sheet shows signs of strain. With a debt-to-equity ratio of 1.89, it’s operating with a high level of leverage, posing risks if profitability wanes or interest rates rise.

There are some other risks too, such as inflationary pressure on consumer spending that would affect pub sales. Not to mention, regulatory challenges and limited financial flexibility due to debt obligations.

Still, Marston’s overall seems like an intriguing opportunity to me, especially given its recent rally and undervaluation. As always, careful consideration of its financial stability and macroeconomic factors is pertinent before making any decisions.

Cheers to that

The recent performance of the FTSE 100 has been notably strong. Despite broader concerns about a market crash, the battle to reduce inflation continues and hope remains that the Bank of England might ease interest rates sooner than expected.

Against this backdrop, I think Marston’s is an appealing small-cap stock for growth-focused investors to consider. Its recent profit forecast and performance suggest significant potential, and it still appears undervalued. If it continues to deliver better-than-expected results, it should be able to reduce its debt level further and bolster its balance sheet.

Not only that, but it’s an interesting development for a pub stock at a time when alcohol giant Diageo is also showing signs of a recovery.

Maybe that calls for a drink, after all. Cheers!