Share price of ceramic cos not relevant with earnings
Staff Correspondent: Shinepukur Ceramic is currently the most talked about company in the stock market. The company’s share price has doubled in less than a month. On April 17, the share price of this ceramic company was Tk 25. From there, the share price rose to Tk 48.90 per share on May 18. The company’s financial picture is not very good, even if the share price rises.
The company’s financial picture is not very good, even if the share price rises. In the nine months of the current accounting year (July 2021 to March this year) the profit per share has been only 26 paise.
The company has not done very well in previous accounting years. That is why investors receive limited dividends from the company. In the year ended June 30, 2021, the profit per share was 32 paise. Based on this, the company pays two and a half percent cash dividend. Prior to that, the company paid a 2 percent cash dividend based on a profit of 21 paise per share for the year ended June 30, 2020.
Foreign investors have no interest in the company’s shares due to poor financial picture and inability to pay good dividends. According to the Dhaka Stock Exchange (DSE), foreign investors have no investment in the company’s shares.
However, institutional investment in the company’s shares has recently increased. At the end of April, institutional investors held 10.4 percent of the company’s total shares, up from 9.90 percent a month earlier. In June 2021, it was 7.34 percent.
The price-to-earnings (PE) ratio of Shinepukur Ceramics stood at 146.56 points (May 16) due to rising share prices and poor business conditions. As a result, investing in the company’s stock is risky, market analysts say.
They say that before investing in the shares of an organization, the overall issues of the company including income, PE, dividends should be reviewed. It is generally considered appropriate to invest in shares of companies below PE20. If it goes above PE 20, investing in the shares of that company is considered risky.
Asked about the importance of a company’s PE, Ahmed Rashid Lali, former president of the DSE Brokers Association of Bangladesh (DBA), an association of members of the Dhaka Stock Exchange said that PE is an important indicator for investing in the stock market. As much as the PE of a company, it is assumed that investing in that company will take that number of years to return the money invested. In other words, if the PE of a company is 50, it will take 50 years for the money invested from that company to come back.
“We are not risk-free until PE20,” he said. Moving above PE (20’s) is considered risky. However, it is not always possible to determine the investment risk with PE. This is because PE is determined on the basis of the previous year’s financial report. Even if a company’s PE is high, if its future plans are good, it is not often risky.
Not only Shinepukur, but most of the companies listed in the ceramic sector do not share the share price with the financial picture. As a result, even foreign investors are not interested in investing in stocks. Five companies in this sector are listed in the stock market. Its two companies have nominal investments from foreign investors.
Standard Ceramic currently has the worst financial picture among companies in the ceramic sector. In the nine months from June 2021 to March this year, the company has lost two rupees 20 paise per share. Even after making such a loss, the price of each share of the company is Tk 138.10. As a result, the PE ratio stands at 575.42 points.
There is no investment of foreign investors in this institution. And although there has been investment by institutional investors, it has declined in recent times. At the end of April, the company held 4.9 percent of its total shares held by institutional investors, up from 4.27 percent in March. And in June last year it was 5.62 percent.
The lowest PE RAK ceramic companies in the ceramic sector. The PE of the company is 20.61 points. The company, which made a profit of 58 paise per share in the first three months of this year, has a share price of Tk 43.80. Of course, there is no foreign investment in this company. However, institutional investment has increased somewhat. Institutional investors held 16.19 percent of the company’s total shares at the end of April, up from 15.75 percent in March.
Among the two foreign-invested companies, Munnu Ceramic has a PE ratio of 114.8%. In the nine months from July last year to March this year, the profit per share has been one taka 4 paise. The price of each share is Tk 103.20. Foreign investors hold 0.6 percent of the company’s total shares, up from 0.8 percent in March.
In addition, Fu-Wang Ceramics has zero-point 40 percent shares with foreigners. In March of this year and also in June of last year, the foreign investors had zero-point 40 percent shares of the company. Institutional investors hold 8.64 percent of the company’s stock, up from 8.94 percent in March. The company’s PE is 56.36 points. The share price is 19 rupees 50 paise. In the three months from January to March this year, the earnings per share have been 18 paise.
Asked about this, AB Mirza Azizul Islam, former chairman of Bangladesh Securities and Exchange Commission (BSEC) and a prominent economist, told that investing in a company with a PE above 500 is risky. The profit per share in the nine-month business is 26 paise, but the share price is Tk 40-50. It is risky to invest in it too. I do not understand why investors invest in these stocks.
I do not understand why investors invest in these stocks. The company’s income, dividends, PE are very important when investing in the stock market. The company must review these issues well before investing.
Mohammad Asad Ullah, company secretary of Shinepukur Ceramics, was contacted and told that he could not explain why the price of Shinepukur ceramics was increasing. We have no undisclosed price sensitive information. We have published price sensitive information.
Do you think the recent rise in the share price of Shinepukur Ceramics is normal? In response to such a question, he said, “I have no comment on this matter.” Because we do not see or control the stock exchange.
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