Market bears ignore strong earnings performance since 2009
At year end 2009 after the market index had dropped 64 percent from its 2007 year end level, the stock market PE was still as high as 30.28. Today, with NSE All Share Index PE at 10.12, the stock market is the cheapest it has been since 2015 as rapid earnings per share growth has been met with unrestrained market selloff this year due to political uncertainty and slow economic growth.
Between 2009 and 2018, total market earnings per share have averaged an annual growth of 142 percent.
Earnings per share grew from N687.2 per share in 2009 to N3,485.42 today despite Nigeria’s economic growth averaging just 4.1 percent during the nine year period.
The market has not been short of drama since it crashed in 2008. From the oil price boom between 2010 and 2014 which helped lift the stock market index to levels last seen since 2008, to a market bust between 2014 and 2016 due to an oil price crash in 2015, a currency crisis in 2016 and the first economic contraction in 25 years which literally brought the market to its knees in 2016.
Market rebounded in 2017, returning 42 percent off the back of an oil price rally and a return to positive economic growth in the country. However, 2018 has been a pain for investors as selloffs which began in February this year has still continued to trading decisions in the market parlance today.
Today the stock market trades at a 66.67 percent discount to its 2009 level and 50 percent discount to its 2013 prices. Earnings per share on the other hand are now up 5x since 2009 and 1.3x higher since 2013.
Although the index is up more than 15,000 points since 2009, the 70 percent rise in the All Share Index pales greatly behind the 407 percent expansion in the bottom line of publicly listed companies on the NSE.
Fundamental investors must have felt a lot of pain investing in the market during this period as stock price performance has tremendously lagged earnings growth. If this earnings performance continues into the next decade, it won’t be surprising to see an astronomical rise in equity prices over the coming decade as stock prices adequately reflect underlying strong earnings performance by then.
Source: BusinessDay Online
