More equities in the NGX have negative price-to-earnings ratios, which is indicative of the losses that many listed companies have suffered in recent months.
However, because of the companies’ reported profitability, some stocks have also shown tremendous potential.
The majority of these businesses have, predictably, been in the banking industry. These stocks generate little to no noise, regardless of the returns they report.
Based on their price-to-earnings ratio, BusinessDay’s analysis examines firms that are thought to be among the most undervalued on the NGX.
Simply put, investors’ willingness to pay for each dollar of a company’s earnings (profits) is gauged by the price-to-earnings ratio (P/E).
The degree of value that investors place on a company’s shares is accurately described by a high or low P/E ratio. Stated differently, either the stock is overpriced or investors are paying a high premium because they anticipate a high value from it.
Conversely, low P/E ratios indicate that either the market is undervaluing the companies or investors are not paying significant premiums. The success of businesses in a similar industry can be compared using P/E ratios.
Here are a few of the NGX’s cheap stocks.
FCMB: 1.40x
Out of all the listed banking stocks on the NGX, FCMB has the lowest P/E ratio. The stock’s P/E ratio is 1.40x, and its share price has only increased by 14% so far this year.
The group reported N58.5 billion in net profit in H1 2024, up 65% year over year from N35.4 billion in H1 2023.
Analysts speculate that the group’s attitude to shareholder returns may be the reason for the stock’s undervaluation. A dividend yield of almost 7% was generated by FCMB’s final payout of 50 kobo for FY 2023. Additionally, the group is not suggesting any dividend payouts for H1 2024.
GTCO Holdings: 1.62x
Despite having the highest share price among the top-tier banking stocks on the NGX, GTCO is considered the “cheapest.” Among the premium banking companies, GTCO Holdings has the lowest valuation, with a P/E ratio of 1.62x.
The share price of GTCO’s stock would need to be around N83.5 in order for the bank to trade at a P/E ratio of roughly 2.60, which is comparable to the P/E ratio of its competitors, FBN Holdings, and Access Holdings. Given the FY 2023 dividend yield of 8%, investors might not be interested in pushing the stock to that price point.
Stocks in banking and insurance often have the lowest P/E ratios in the market.
Coronation Insurance: 1.54x
Coronation Insurance has the lowest P/E ratio among the insurance stocks that are listed on the NGX. For the half-year ending June 30, 2024, the company reported a net profit of N6.3 billion, a substantial increase over the N728 million net loss reported in H1 2023.
Due to its expansion, Coronation is now a desirable stock for investors. To attract investors, the business might need to remain consistent, according to analysts. The N1.76 billion in losses the corporation had accrued as of FYE 2023 have finally been paid off.
John Holt: 1.85x
With a 1.85x P/E ratio, John Holt Plc is a surprisingly cheap stock on the NGX. The company reported a net profit of N643 million for the nine months from September 2023 to June 2024, which represented a 141 percent year-over-year increase from the N1.6 billion loss reported in H1 2023.
One possible explanation for John Holt’s “undervaluation” is the company’s failure to pay dividends since 2005. Nonetheless, John Holt has increased in value by 445 percent from the beginning of 2020, which translates to a compound annual growth rate of 53 percent.
