Most “Inexpensive” Stocks On Bucharest Bourse

To long-term investors, who try to identify undervalued companies, the P/E (price to earnings ratio) is an important indicator as to the attractiveness of a specific company.

The P/E ratio is calculated by dividing the stock price to the earnings per share. There are several types of P/E but one of the most often used is the Trailing P/E, i.e. the share price divided by the earnings per share in the last four reporting quarters. The latest data available for the companies on the local stock market are the third quarter data, so that the Trailing P/E is calculated from the earnings of the first nine months of 2011 and those of the last quarter of 2010.

What does the P/E mean? It tells the number of years in which investors will get back the investment from the company’s profits. If a company has a P/E of 2, as Azomures does, the investor will get back their investment from two years’ worth of profits for that company assuming profits remain constant.

Azomures (AZO.RO)

Azomures is currently the most “inexpensive” stock on the Bucharest stock market by P/E, even though it posted the second highest growth on the bourse this year, 180%. A significant increase in the stock price leads to an increase in P/E and, implicitly, makes that particular stock less attractive. In Azomures’ case, however, the rise in stock price was offset by the record profits reported this year.

Even though Azomures is an attractive stock P/E-wise, investors need to ask themselves the question of how long the company can continue to post the high profits of the past year. Azomures posted net profit of 288 million lei (EUR67 million) in the first nine months of 2011, helped by an extremely favorable international context, as fertilizer prices surged.

TMK Artrom (ART.RO)

Pipe manufacturer TMK Artrom Slatina (ART.RO) ranks second on the stock market by P/E ratio, after having posted significant profit in the past year. Artrom’s shares have fallen 17% since the beginning of the year. Although apparently cheap, Artrom is one of the companies whose results fluctuate heavily from one year to the next, because it operates in a sector that is extremely sensitive to the macroeconomic trends. Artrom posted losses in 2008 through 2010.

Electroarges (ELGS.RO)

Vacuum cleaner maker Electroarges Curtea de Arges (ELGS.RO) is one of the companies whose results have constantly improved over the last few years. Electroarges stock price has varied greatly over 2011. After businessman Catalin Chelu acquired a significant stake in it last year, the company has lost some of its attractiveness as the new shareholder did not pay dividends but chose to increase capital.

SIF Transilvania (SIF3.RO)

SIF Transilvania (SIF3.RO) was the most profitable of the five regional investment funds (SIF) in the first nine months of the year, after selling stakes in BRD. It also sold its stake in BCR a little while ago so that it could post record profit in 2011.

Mecanica Ceahlau (MECF.RO)

Agricultural machinery maker Mecanica Ceahlau (MECF.RO) got back on track in the last two years and posted record nine-month profit of RON6.8 million. Still, it is a low stock liquidity company, which makes investment risky.

OMV Petrom (SNP.RO)

The largest company in Romania posted the highest profit ever in the first nine months of 2011 and RON3.7 billion earnings in the last twelve months. Petrom is one of the few local companies to have made significant profit during the crisis. As the oil price remained high worldwide and Petrom is the largest company on the bourse, its stock is among the most attractive on the market. Still, investors did not rush to buy Petrom this year, hence a 14% drop in price since the beginning of the year.

(English version by Loredana Fratila-Cristescu)

Companies with the lowest P/E ratios on Bucharest Stock Exchange

* P/E according to IFRS
Source: BVB