EghtesadOnline: The latest Consensus Earnings Report shows the price to earnings (P/E) ratio of Iranian stocks has dropped to its lowest level in nine months, although growth in profitability has boosted optimism over future performance.
The report put the P/E ratio of analyzed companies at 4.3. It is the result of collaboration between 33 asset management groups active in Iran's capital markets analyzing indicators of 60 public companies in 19 industries published twice per quarter.
Securities and Exchange News Agency's latest data show the average price to earnings ratio of Tehran Stock Exchange-listed companies stood at 6.64 for the first quarter of the current fiscal year (March 21-June 21).
The ratio grew 3.1% compared to last fiscal's closing rate, according to Financial Tribune.
“Despite current uncertainties domestically and abroad, prominent growth in expected profitability of companies has resulted in a general optimism toward markets’ performance in the coming months,” said Farhang Qaragozlu, one of the contributors to the report from Kian Capital Management.
The price-earnings ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings.
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends.
The Iranian stock market has grown by nearly 40% since the beginning of the Iranian year (started March 21).
Companies reported earnings in the past, but since December 2017, Iran's Securities and Exchange Organization banned the publication of estimated future performance by public companies.
Consensus Earnings Reports are commonly used as a tool by investors internationally to gauge professional investors' views on the future performance of the market.
The report indicates that out of the 37 TSE industries, four of them had an average P/E ratio of less than 6, while it was more than 10 for 11 industries. The rest had a P/E ranging from six to 10.
Among those standing above 10, two had an average P/E of more than 100. In fact, the leather industry recorded a ratio of 843 for the period, followed by textile with 113. Both industries are tracking single listed company shares.
Next come transportation and storage with a P/E of 25; paper with 22; tiles and ceramic as well as auto and parts manufacture, each with 11; and radio and TV manufacture, agriculture and related services, each with 10.
At the bottom of the list, however, was medical and optical devices manufacture with a P/E of 1.8 and only one listed-company's tracked share.
Telecommunications scored 4, while multidisciplinary industrial firms and electricity, gas and steam procurement industries were better off with 5.
The ratio's growth for Q1 was mainly attributed to the market's rally in the third month's dying days.
TSE's primary index TEDPIX jumped 13% overall in Q1 to set a record 108,872. The three-month growth was over half of what stocks had gained during the previous fiscal, and its intensity was promising sweet earnings to investors.