Since the start of the year, European growth stocks have underperformed the broader market. While the Morningstar Europe Index gained 13.1% in euros through Aug. 17, the Morningstar Developed Europe Target Market Growth Index returned 11.0%.
From a valuation perspective, the European growth style trades at a slightly wider discount than the broader market. As of the end of July, the latest available data, the European growth index had a price/fair value ratio of 0.94, compared with 0.96 for the broader European regional index.
However, within the European growth index, there are companies trading at significant discounts to their fair value estimates.
5 Undervalued Growth Stocks
These are the five largest European companies covered by Morningstar analysts, belonging to the “Large Growth” style box, which are trading at a discount of more than 20% as of Aug. 17, 2026.
SAP SAP
- Sector: Technology
- Economic Moat: Wide
- Morningstar Rating: ★★★★★
- Price/Fair Value: 0.68
- Morningstar Uncertainty Rating: Medium
Rob Hales, equity analyst for Morningstar, says: “We maintain our EUR 265 fair value estimate for wide-moat SAP and view the shares as undervalued. Our estimates are moderately higher than company-compiled consensus on long-term growth. Shares have been heading south for several months, which we see as driven by indiscriminate market angst around the threat of GenAI to all software companies. We think it’s highly unlikely that GenAI can displace SAP’s deeply entrenched position within its customer operations.”
Rheinmetall RHM
- Sector: Industrials
- Economic Moat: Wide
- Morningstar Rating: ★★★★★
- Price/Fair Value: 0.51
- Morningstar Uncertainty Rating: Medium
Loredana Muharremi, equity analyst for Morningstar, says: “Results confirm that the production ramp is translating into revenue and margin expansion. The market reaction reflects less perceived visibility on Germany’s procurement pipeline, Arminius timing and its cash flow implications, and a new Boxer guidance structure.”
Prosus PRX
- Sector: Consumer Cyclical
- Economic Moat: Wide
- Morningstar Rating: ★★★★★
- Price/Fair Value: 0.52
- Morningstar Uncertainty Rating: High
Verushka Shetty, equity analyst for Morningstar, says: “Our fair value estimate for Prosus is EUR 72 per share. We use a sum-of-the-parts approach to valuing Prosus, using our fair value estimates for the listed investments we cover. We value Tencent, which makes up nearly 80% of Prosus’ net asset value, at HKD 800 per share, based on our fair value estimate for the stand-alone entity. We apply a 31% holding company discount to the Prosus portfolio. This discount is forward-looking, driven by projected share repurchases over our explicit forecast under the open-ended share repurchase program, which is funded by the sale of Tencent shares.”
STMicroelectronics STMPA
- Sector: Technology
- Economic Moat: Narrow
- Morningstar Rating: ★★★★
- Price/Fair Value: 0.79
- Morningstar Uncertainty Rating: Very High
Brian Colello, equity analyst for Morningstar, says: “STM’s third-quarter revenue forecast was below our expectations, but we’re not alarmed. The firm will have softer sales into personal electronics due to high memory prices and is facing some tight supply in its core end markets. Overall, ST is still seeing high demand for artificial intelligence products, especially in optical components. Industrial revenue has snapped back nicely from a prior cyclical downturn, and automotive revenue is picking back up. We’re encouraged that ST lifted its 2027 AI forecast to “well above USD billion” and believe that ST has high visibility into these revenue engagements.”
Ferrovial FER
- Sector: Industrials
- Economic Moat: Wide
- Morningstar Rating: ★★★★★
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Low
Jack Fletcher-Price, equity analyst for Morningstar, says: “We maintain our EUR 80 per share fair value estimate and view shares as materially undervalued. We think the share price undervalues the formidable pricing power of Ferrovial’s toll roads and fails to capture the value of JFK NTO (New Terminal One), which should begin operations in the first half of 2027.”
What Is the Morningstar Price/Fair Value Ratio?
The price/fair value ratio measures whether a stock is cheap or expensive by dividing the price of a stock by Morningstar analysts’ fair value estimate as of the most recent market close. A ratio above 1 indicates the price is higher than Morningstar’s estimate of its fair value; a ratio below 1 indicates that it’s lower.
The Morningstar Style Box
Morningstar uses the style box to identify a company’s investment style. The Morningstar Style Box is a nine-square grid that provides a graphical representation of the investment style of stocks. Growth is defined based on high growth rates for earnings, sales, book value, and cash flow and high valuations, that is, high price ratios and low dividend yields. Often the companies are in rapidly expanding industries.
