Are European Stocks Undervalued? 2026 Review

Are European stocks undervalued?

Asking "are european stocks undervalued" is common among global investors assessing regional allocation and stock selection. This article evaluates whether European equities (countries, sectors and individual stocks listed in Europe) trade below estimated fair value, how that is measured, what Morningstar and major asset managers have reported in 2024–2026, and what it implies for investors.

We cover market- and country-level valuations, sector differences, key drivers (macro, composition, corporate returns), representative undervalued and overvalued examples, analyst methods for determining fair value, and a practical checklist investors can apply. Readers will gain a framework to judge the claim "are european stocks undervalued" using observable metrics and analyst signals, without prescriptive investment advice.

Definition and how “undervalued” is measured

In equity analysis, "undervalued" means the market price is below an estimate of the asset's intrinsic or fair value. When asking "are european stocks undervalued", the question is whether market prices across European indices, countries, sectors or stocks sit materially below commonly accepted fair-value estimates.

Common measurement approaches

• Price / Fair Value ratio: Firms like Morningstar publish a price-to-fair-value ratio. A ratio below 1.0 indicates price < fair value (i.e., undervaluation). Many providers also express position as a percentile vs long-run fair value models.

• Price / Earnings (P/E): Trailing or forward P/E compares current price to earnings. A lower P/E versus history or peers can suggest undervaluation (context needed for earnings quality and cycle effects).

• Cyclically Adjusted P/E (CAPE): Smooths earnings over a long cycle to reduce noise from business cycles. Useful to compare region-level valuations.

• Price-to-Book (P/B): Helpful where balance-sheet values matter (financials, real estate). Low P/B may signal undervaluation for asset-heavy sectors.

• Dividend yield and total yield (dividends + buybacks): Higher income yields relative to history/peers can indicate cheaper valuations or stronger shareholder returns.

• Forward P/E and discounted cash flow (DCF)-based fair values: Many sell-side and independent analysts use forward estimates or DCF models to derive fair value.

How providers express undervaluation

• Morningstar: Typically reports a stock or market price/fair-value ratio (price ÷ fair value). Ratios <1.0 indicate undervaluation; Morningstar also reports the magnitude (e.g., 4–8% discount).

• Vanguard / Asset managers: Use relative P/E, CAPE, and dividend-adjusted comparisons to describe whether a region looks cheaper or more expensive than alternatives.

• Percentile or z-score vs historical distribution: Some research expresses current valuations relative to long-run percentiles (e.g., 20th percentile = historically cheap).

Measuring "undervalued" requires context: cyclical earnings, currency shifts, sector composition and macro outlook all affect whether a low ratio represents genuine opportunity or justified discount.

Recent market readings and evidence

Summary: Major providers present a mixed but cautiously favorable view of European valuations in 2024–2026 — modest discounts at the aggregate level with notable country and sector dispersion.

Morningstar findings (2024–2026)

As of late 2025 and early 2026, Morningstar’s aggregate Europe price/fair value ratios hovered near roughly 0.96–0.98, implying low-single-digit average undervaluation across their Europe coverage.

• Morningstar reported country dispersion: some markets (e.g., Netherlands, Denmark) often showed larger discounts to fair value while others (Spain, Italy at times) traded at premiums driven by strong moves in a few large names and banking-sector dynamics.

• Sector-level readings: Morningstar’s sector-level work highlighted that real estate and communication services frequently showed wider discounts, while utilities and some financials were sometimes at premiums depending on corporate-specific developments.

• Small-cap discounts: Morningstar research has repeatedly noted that small-cap segments in several European markets have traded materially below Morningstar fair values, producing stock-specific opportunities.

(As with any provider, these snapshots move month to month with earnings cycles and macro shifts.)

Asset manager and research views (J.P. Morgan, Vanguard, Franklin Templeton)

• J.P. Morgan: In note series through 2024–2025, J.P. Morgan Asset Management has argued that European equities can look attractive relative to the U.S. when a persistent valuation gap exists, especially where corporate actions (dividends, buybacks) and improving earnings momentum suggest re-rating potential.

• Vanguard: Vanguard’s valuation work in 2024–2025 showed a mixed picture — euro-area equities were often closer to fair value on cyclically adjusted metrics while the U.S. remained relatively more expensive, particularly in large-cap growth sectors.

• Franklin Templeton: Franklin Templeton’s commentaries have highlighted a persistent valuation discount for Europe versus the U.S. and identified it as an income- and value-rich opportunity set for long-term, active allocation.

These asset-manager views typically emphasize relative comparisons rather than absolute calls and stress that macro and earnings paths determine whether the valuation gap closes.

Geographic and sector dispersion

Europe is heterogeneous: aggregated metrics mask large cross-country and cross-sector differences. Answering "are european stocks undervalued" therefore requires drilling down to country, sector and market-cap levels.

Country examples and drivers

• Denmark: The Danish market is heavily influenced by a few mega-cap pharma and biotech names (for example, companies contributing materially to index returns). When such companies lag relative to their fair values, Denmark’s aggregate ratio can look cheaper.

• Netherlands: The Netherlands is often affected by semiconductor supply-chain and equipment firms; a pullback in large-cap industrial/tech-related names can push aggregate valuations lower.

• Spain and Italy: Country-level valuations in Spain and Italy have at times been elevated due to concentration in financials and utilities or strong sector performance. Bank share-price moves and regulatory news can materially affect country-level P/E multiples.

• United Kingdom: The UK’s valuation behavior often reflects heavy weights in energy, mining and financials; global commodity cycles and dividend expectations are important drivers.

Drivers of country dispersion include corporate concentration (one or two large firms shifting index valuation), differential earnings momentum, political/regulatory developments and currency moves.

Sector-level patterns

• Cheaper sectors: Real estate and communication services have shown relative discounts in several Morningstar snapshots, driven by earnings headwinds, asset repricing concerns and structural competitiveness.

• Richer sectors: Utilities and some financial subsectors have sometimes traded at premiums when interest-rate paths or financial-sector reforms supported earnings.

• Growth vs value split: Europe’s benchmark indices tend to have larger weights in value and cyclical sectors (banks, industrials, energy) compared with the U.S. index, which is more concentrated in large-cap growth software and internet names. This composition difference explains much of the valuation gap at index level.

Key drivers of the European valuation gap

Europe’s relative valuation profile versus other regions reflects macro, structural and corporate-return dynamics.

Summary: Sector composition, macro growth and inflation differentials, monetary policy divergence, and corporate capital-return behaviour jointly explain why investors ask "are european stocks undervalued".

Sector composition and growth expectations

• Europe has relatively higher weights in banks, industrials and energy — sectors that typically trade at lower P/E multiples than high-growth tech firms.

• Investors comparing headline multiples across regions must account for differing sectoral mixes. A headline lower multiple does not automatically equal better value if growth and margins are also lower.

Macro variables (growth, inflation, energy, China demand)

• Regional growth momentum and inflation expectations directly affect earnings forecasts and discount-rate assumptions.

• Energy-price shocks or improvements (important for some European economies) affect earnings differently across sectors — benefiting some industries and weighing on others.

• Demand from China and global trade cycles matters for industrial and commodity-linked European exporters.

Monetary policy and interest rates (ECB vs Fed)

• Relative central-bank paths affect discount rates and currency expectations. If the ECB is on a later easing track than the Fed, real rates and risk premia may remain structurally different, influencing equity multiples.

• Sensitivity to interest-rate moves differs by sector; utilities and financials often react distinctly to rate changes compared with cyclicals.

Corporate returns (dividends, buybacks, capital allocation)

• A historic gap in shareholder-return practices has narrowed: European firms have increased buybacks and maintained attractive dividend yields, which can offset lower multiples and attract yield-sensitive investors.

• J.P. Morgan and other asset managers have pointed to rising buyback activity as a factor that can reduce the valuation gap when combined with improving earnings.

Opportunities and risks for investors

High-level guidance: A measured reading of whether "are european stocks undervalued" will identify selective opportunities, but investors must weigh macro risks, concentration effects and growth differentials.

Potential opportunities

• Country- and sector-level value: Identifying underpriced countries (e.g., where large-cap pullbacks overstate deterioration) and cheap sectors (real estate, certain communication services) can yield opportunities.

• Small-cap discounts: Morningstar and other providers have shown small-cap segments trading materially under fair value, presenting stock-specific opportunities for research-driven investors.

• Income plus buybacks: Higher dividend yields and growing buyback programs in Europe can enhance total shareholder yields versus developed-market peers.

• Stock-specific discounts: Independent fair-value research often lists individual European companies trading below analyst-derived fair values (examples flagged by Morningstar in recent lists include GN Store Nord, Tate & Lyle, Edenred and Nexi as names that have at times shown analyst-identified discounts). These can represent idiosyncratic opportunities rather than region-wide buys.

Main risks

• Earnings-growth differential: A persistent gap in earnings growth versus the United States could justify lower multiples and limit re-rating potential.

• Political and regulatory risks: Country-specific regulatory actions or political shifts can affect sectors (banking, energy, utilities) and cause swift repricing.

• Concentration risk: Some European indices are heavily influenced by a few names; index-level moves can therefore mask underlying weakness or strength.

• Macro shocks: Energy disruptions, a sharper slowdown in China, or adverse ECB policy surprises could rapidly compress multiples.

Practical approaches (strategies)

• Selective stock picking: Use fair-value research providers and company-level analysis to identify genuine discounts while avoiding broad assumptions from index-level data.

• Sector and country tilts: Tactical overweighting of undervalued sectors or countries where fundamentals and policy outlooks are supportive.

• ETFs for broad exposure: For passive exposure to European valuation opportunities, consider broad or factor ETFs that emphasize value or dividend characteristics.

• Active managers: Use active managers with regional expertise for stock-picking in small-cap and idiosyncratic segments.

(Any allocation decision should be aligned with investor objectives and risk tolerance; this text is informational and not investment advice.)

How analysts determine fair value and disagreements

Analysts use a variety of models to set fair values; differences in inputs explain why providers disagree on whether European equities are undervalued.

Common analyst approaches

• Discounted Cash Flow (DCF): Projects future free cash flows and discounts them using a chosen discount rate. Small changes in growth or the discount rate can produce large fair-value differences.

• Normalized or adjusted earnings models: Use multi-year average earnings or cyclically adjusted measures (CAPE-style) to smooth volatility.

• Relative valuation: Compare multiples to peers, regions or historical means.

• Residual-income or asset-based models: Often used for financials and real-estate firms where balance-sheet values matter.

Why disagreements occur

• Growth assumptions: Differing views on revenue growth and margin recovery create divergent valuations.

• Discount rates: Variations in the risk-free rate, equity risk premium and company-specific beta lead to divergent discount rates.

• Earnings quality and adjustments: Divergent adjustments for one-off items, accounting differences and cyclical effects affect normalized earnings.

• Macro and sector outlook: Different forecasts for GDP, commodity prices, monetary policy and regulation drive model variation.

Analyst uncertainty ratings and sensitivity tables often accompany fair-value estimates to show how valuations change under different scenarios.

Case studies / representative examples

The following examples illustrate how individual stocks and country-level exposures can influence the broader question "are european stocks undervalued".

Undervalued examples (from research)

• GN Store Nord (example): In periodic Morningstar lists, GN Store Nord — a hearing-aid and audio solutions company — has been flagged as trading below Morningstar fair value in snapshots where the market short-term outlook was muted but long-term fundamentals remained intact.

• Tate & Lyle: Commodity-related adjustments and margin cycles have produced episodic discounts relative to some fair-value models.

• Edenred and Nexi: Payment-service providers have at times appeared undervalued versus intrinsic payment-network cash-flow expectations, according to some independent fair-value screens.

(These are illustrative examples of names that appear in public fair-value lists; valuations can change rapidly with new information.)

Overvalued examples

• Bank-driven country premiums: Large banking groups in Spain or Italy (e.g., major banks that carry heavy index weights) can drive national indices to appear expensive when those banks rally on earnings or regulatory relief.

• Utilities or energy firms at peaks: In periods where utility earnings expectations rose unexpectedly due to regulatory shifts or commodity tailwinds, sectors have temporarily traded at higher multiples.

These examples show why a region-level view can conceal substantial stock-specific variation.

Comparative view — Europe vs United States and other regions

Historically, the U.S. trades at higher multiples than Europe driven by a larger share of high-growth technology and internet-oriented companies. Recent years have preserved much of that gap, but magnitude and dynamics shift with earnings cycles, interest rates and sector rotations.

• Valuation gap: U.S. large-cap indices often trade at premium P/E and CAPE multiples versus MSCI Europe. This gap reflects higher growth expectations, stronger profit margins and concentration in mega-cap technology firms.

• Drivers of gap: Sector composition (more growth tech in the U.S.), corporate profit margin differences, and investor sentiment toward durable growth explain much of the difference.

• Asset manager views: Vanguard and Franklin Templeton have underlined that the valuation gap creates an opportunity set for investors seeking value or yield, but they stress that active selection is required to capture it given growth and earnings differential risks.

Practical investor checklist

Use the following checklist to assess whether "are european stocks undervalued" applies to your portfolio or research horizon:

1. Check price/fair-value ratios from reputable providers (Morningstar, independent research) for country, sector and stock levels.
2. Compare forward and trailing P/E and CAPE percentiles vs long-run history for the relevant market.
3. Review sector composition: does the index overweight low-multiple sectors (banks, energy) or growth sectors?
4. Examine macro outlook: GDP growth, inflation and central-bank guidance (ECB path) for the region and major countries.
5. Assess corporate returns: dividend yield, recent buybacks and payout policies relative to history.
6. Evaluate concentration risk: identify whether a few names dominate index performance and whether those names are reasonably valued.
7. Consider small-cap and mid-cap discounts separately; these segments often show different valuation dynamics.
8. Use scenario analysis: perform sensitivity checks on earnings and discount-rate assumptions.
9. Factor in political/regulatory risks and currency exposure.
10. Align any decision with your time horizon, risk tolerance and portfolio diversification objectives.

This checklist helps translate the question "are european stocks undervalued" into actionable data points while avoiding one-size-fits-all conclusions.

See also

• Equity valuation measures
• Value investing
• European stock indices (MSCI Europe, Euro Stoxx 50)
• Morningstar fair-value methodology

References and further reading

• Morningstar market and stock analyses (Europe-focused valuation snapshots and undervalued stock lists, 2024–2026)
• J.P. Morgan Asset Management research notes on European equities and corporate returns (2024–2025)
• Vanguard valuation insights and regional comparisons (2024–2025)
• Franklin Templeton equity commentaries on Europe and the valuation gap (2024–2025)

As of January 9, 2026, according to Benzinga, market watchers continued to scan for undervalued and under-followed stocks globally via thematic indices such as the Benzinga Stock Whisper Index, highlighting continued investor interest in identifying hidden opportunities across regions.

Notes on sources used

The structure and section content are primarily based on publicly available Morningstar market-level valuation updates and undervalued stock lists, commentary and research from J.P. Morgan and Vanguard on relative valuations and macro drivers, and Franklin Templeton outlook pieces emphasizing the valuation gap and value opportunities. The Benzinga reference above illustrates market-level attention to undervalued names as of early 2026.

Further actions and where to explore market access

If you want broad market access, portfolio tools and research integration while exploring valuation opportunities, consider platforms that combine market data and trade execution. Bitget provides market access and custody tools and the Bitget Wallet for digital-asset management. Explore Bitget’s product pages and educational resources to see how platform features may complement your research workflow.

For deeper research on whether "are european stocks undervalued" applies to specific stocks or sectors, consult primary research providers (Morningstar, asset managers) and company filings, and cross-check multiple valuation approaches.

Further exploration: use the practical checklist above to form your own view, and consult licensed advisors for portfolio decisions.

Article last updated: January 9, 2026. Sources: Morningstar, J.P. Morgan Asset Management, Vanguard, Franklin Templeton, Benzinga.