It’s no secret that I’m a big fan of using index filters. These are created by setting a range of desired characteristics and then scanning the market to find companies that match my criteria. When I started searching the market this way, I found the process quite daunting. I’d read about other private investors who created really complex filters taking in many different objectives that needed to be met.
Instead, I decided to look for a simple filter to avoid things becoming too complicated. This involves looking within the FTSE 100 and finding stocks recently trading at a one-year low. My rationale is that when a share hits its lowest price for the year, it could indicate that it’s now in good value territory. Of course, this isn’t the whole story, and I can’t just buy any company at this low level. However, this should narrow my search and make finding a share to analyse easier.
A new opportunity
Given that the broader market has been seeing negative performance over the last few months, I decided to narrow my filter. I searched for companies that had hit their year-low level in the previous week. This allowed me to spot brand-new opportunities rather than outdated finds. Shares that saw a fall in the last few weeks, and hit their year-low, are less useful than those that more recently fell in value. Why? Well, these new finds are less likely to have recovered from the fall.
Airtel Africa (LSE: AAF) appeared in my filter, as the stock hit a year-low price in the last seven days. This company provides low-cost mobile services in Africa and has been trading on the UK market since 2019. The stock is down 9.7% in 2022 after an extremely strong 2021, where it grew by almost 77%. It’s now trading with a price-to-earnings (P/E) ratio of just 8.6. This is below the FTSE 100 average of around 15.
Assessing the fundamentals
The share price is, of course, just one element to consider, and frequently a share price has fallen for a good reason. However, looking at Airtel’s core fundamentals, I’m quite pleased. Profit margins are very high, cash generation is strong, and the company pays a decent dividend. This yield is currently 3.6% and is forecast to grow by almost 25% next year, reaching 4.5%. Furthermore, the dividend cover ratio of 3.2 confirms that it can comfortably pay this yield from its earnings per share (EPS).
However, there are a few less encouraging signs too. Debt high, currently reaching 76.2% of market capitalisation. Also, forecast earnings are well below previous levels. Turnover is expected to increase by 13.9% in 2023, below the three-year average of 15.3%, and bottom-line profit is forecast to rise by 10.6%, a considerable decline from the average of over 52%.
Nevertheless, looking for shares that have recently hit the year low has allowed me to find an attractive new opportunity. The low P/E ratio and strong fundamentals are certainly encouraging. Therefore, I’ll likely add the company to my portfolio once I get the cash.
