The price-to-earnings (P/E) ratio is one of the core metrics for valuing a company. I always assess the P/E before buying a stock.
The metric is calculated by dividing the company’s share price by its earnings per share.
However, it’s worth noting that a very low P/E could be a sign that something is wrong.
So, here are some of the cheapest UK-listed stocks according to the metric.
Bank of Georgia
The Bank of Georgia (LSE:BGEO) has a P/E ratio of just 3.7. That’s very low, particularly for a financial services company. In fact, it’s so low that I might think that something is amiss here.
The share price plummeted after Russia’s invasion of Ukraine. Both countries are major trading partners of Georgia, despite Tbilisi’s uneasy relationship with Moscow.
The stock has recovered somewhat, but the falling share price belies the strength of the Georgian economy and the bank’s operations.
The bank delivered £192m in pre-tax profit last year, which is exceptional considering the impact of Covid-19.
The Georgian economy is continuing to grow and this is reflected by the performance of its peers in H1.
The economy may expand more slowly than expected this year, and that would hurt revenue. But this is yet to be seen. Tbilisi is currently filled with Russian émigrés. Georgians don’t like it, but it won’t be bad for business.
TBC Group
We’re in Georgia again. TBC Group (LSE:TBCG) is its number one bank. The share price has largely mirrored that of the Bank of Georgia.
It has a P/E ratio of around 2.4 having made $299m in pre-tax profits last year. Its current market cap is just £669m. That means it must be the the cheapest non-distressed asset on the UK stock market.
In May, TBC said that profits were up year on year as the Georgian economy boomed. First-quarter net profits jumped 46% from the same quarter last year to 224m lari (£61m). Uzbek operations were also expanding in line with expectations, it said.
Risks are very similar to those faced by the Bank of Georgia. But on the whole, I see Georgia as an attractive and stable growth market for long-term returns.
Barclays
Barclays (LSE:BARC) has a P/E of four. Yes, there are definitely stocks on the index with lower ratios, but they’re much riskier. For example, Polymetal has a P/E just above one. But that’s a really distressed stock.
This FTSE 100 bank is a giant of the financial services industry. Total income for the first quarter rose 10% to £6.5bn, despite big litigation and conduct charges.
There’s plenty of uncertainty around the UK economy, but there are upsides for banks as interest rates rise. In fact, this week, Credit Suisse said it expected upgrades to lenders’ guidance for net interest margins and net interest income.
The forecast downturn in the UK economy is unlikely to be good for business. But in the long run, things will improve for Britain. Either way, I’d buy more Barclays shares with the P/E at its current levels.
I’ve actually bought all of the stocks on this list, and would buy more at the current prices.
