Cheapest Stocks On The Bucharest Stock Exchange By P/E Ratio

The P/E is probably the best-known and most widely used indicator when analyzing a specific listed stock. This indicator, which is a ratio of the company’s current share price compared with its per-share earnings, actually shows how many years it takes an investor to get back the price paid for the shares from the company’s profit.

For instance, Romania’s largest company Petrom has a P/E of 4.65, which means the current price of the share is equal to five-years’ profit, or that the investor will get back the investment in less than five years. Petrom is one of the most attractively valued companies on the stock market, because of a low P/E may indicate that the share is undervalued.

The P/E can be calculated taking into account the price per share and either the company’s profit for the past fiscal year (2011) or the cumulated profits for the last four reporting quarters. The ranking was compiled using the profit for the last four quarters as reported by each company for the April 1, 2011 – March 31, 2012 period.

As the ranking is based on past results, the investors should also look at the company’s prospects, not just the P/E. In SIFs’ case for instance, the profit of the last four quarters was significantly influenced by the sale of their BCR shares. The profits may be made again or not, so that in case of SIFs or investment funds in general (such as Fondul Proprietatea), the P/E is not the most indicative, as investors look at the net asset value per share (NAVPS) or the discount to the NAV first.

In the case of vacuum cleaner manufacturer Electroarges (ELGS.RO), the low P/E is the result of the net profit increase in the last few years, which was not followed by a similar increase of the share price. Electroarges’ profit in the first quarter rose by 44%. The same goes for automotive component maker Compa Sibiu (CMP.RO).

On the other hand, glassmaker Stirom (STIB.RO) and energy trader Electromagnetica (ELMA.RO), despite their P/E of less than 10, posted profit decline in the first quarter, so that their financial indicators worsened. Investors should therefore look at the trend of profits and shares when deciding whether a company is attractive or not.

Another example is Azomures (AZO.RO), which, even though it has an attractive P/E compared with the rest of the market, 3.13, has uncertain stock growth price considering the price has gone up a great deal in the past year as a result of the change of majority shareholder, which is due to start a tender offer that might eventually lead to its delisting. Azomures’ profit has increased quote a lot over the last two years as the former shareholders were preparing the sale and wanted the company to look as good possible to get as high a price as they could. Azomures’ P/E might have been useful a year ago when it was among the lowest on the stock market. Azomures shares have gone up by 175% since May 2011.

Statistics show the lowest P/E on the market, but there are also significant differences from one sector to another, so that companies have to be compared with similar companies.

Another indicator widely used by investors is the price to book ratio (P/B), the ratio comparing a share’s market value with its book value. This indicator shows how the shares are valued against the net assets. A P/B much below one may also indicate significant undervaluation of the shares or that the price of the share does not reflect the value of the company’s assets. Therefore, a company with losses and a negative P/E but with a very low P/B, such as Impact, may be interesting to investors even though it is not generating profit, because it has valuable assets.

(English version by Loredana Fratila-Cristescu)