Barış ERKAYA / EXCHANGE ANALYSIS
Fear of inflation and recession around the world signals a turbulent time for growth-oriented markets. Stock markets are one of them. However, it is one of the golden rules of the stock market, and these words have been spoken by all master investors: These times contain great opportunities and stock markets always have price expectations.
So the summary is: Every drop in stocks that you analyze, create your expectations and therefore trust for the long term is a very serious buying opportunity. Because smart investing starts with buying the right stock at the cheapest price you can afford.
From this perspective, second quarter earnings are a unique opportunity. It is also important that these balance sheets have passed an independent audit.
If the efforts to resume the decline experienced after the June 8 summit in Borsa Istanbul are visible, a course still far from the peak is not left out. Clearly, inbound response buying is not very strong. However, when considered on an equity basis, the situation is very different from that of the index. Many stocks are showing independent bullish moves. The clue as to the reason for this lies in the mid-term earnings expectations. Because the communication of the balance sheets, which will begin on July 27, will be supplemented by the consolidated and non-consolidated balance sheets of 200 companies by August 12, and of 336 companies by August 19. In other words, we have a few days before the first balance sheet announcement and 26 days for the last balance sheet announcement.
Watch out for tourism, petrochemicals, holdings and REITs
Expectations are now starting to become clearer. According to the average calculations we made on the estimates of 7 brokerages, profit estimates for a total of 60 companies were determined. We have excluded from this analysis companies estimated by a single brokerage firm (to avoid unusual discrepancies). As a result, expectations for THY’s balance sheet are quite high. Again, there is a very serious increase in bank profitability.
Apart from these, some real estate investment trusts, heavy petrochemical companies such as Tüpraş, Aygaz, some energy companies and giant holdings stand out with high profit expectations. Meanwhile, TAV Airports, like THY, is among the companies expecting strong profit growth during the peak tourist season.
Those who expect lower profits
On the other hand, if the expectations of a drop in profitability of technology companies are not ignored, there is evidence that insurance, consumer discretionary and steel companies could come under pressure on the profits of the sector.
While companies such as Aksigorta, Enka İnşaat, Ülker, Anadolu Sigorta expect a return from profitability in the first half of last year to a loss in the same period this year, large companies such as Vestel , Türk Telekom, Arçelik, Vestel Beyaz Eşya, Turkcell, Petkim, Aselsan, Kardemir have lower profits.
Of course, these earnings forecasts will also have a direct impact on stock market valuations. It is clear that the valuation ratios of a company whose profitability increases will also be cheap. The question is whether these cheaper valuation ratios will be reactivated at the valuation multipliers seen before.
How much is the wait?
The critical point here is this: for example, if a company’s high earnings expectations have already been priced in over the past few weeks, the company’s stock may already be overvalued in the price-earnings multiplier by against balance sheet expectations. To see this, there are certain criteria that small investors can pay attention to. The first of these is the annualized 6-month expected earnings for 2022. Calculate an estimated price/earnings multiplier based on this annualized 6-month earnings. Comparison of these figures with the final price/earnings ratio calculated by annualizing 2022/03 earnings. So, does the company’s price/earnings multiplier seem to have gotten even cheaper with the expected quarterly earnings? We have done this calculation for you. However, it is another important point whether stock prices have already started to price this expectation, and if it has started, at what price it has been priced. To this we have added the highs and lows of July, the period when most stocks started to move.
Thus, it will be possible to see how the expectations of companies regarding their new balance sheets are evaluated, at least on the basis of profitability.
How to read the tables?
In fact, very simply, our price/earnings chart includes comparisons of past and future financial performance and stock price. The way to explain this in a simple way that anyone can understand is perhaps an example of residential investing. Let’s say you bought a house worth 2 million TL for investment in Istanbul and rented it with a monthly rent of 6,000 TL. Even if you never raise the rent, that means you will recoup the money you invested in the house with rent over a 28-year period. If, for example, you increase the rent by 10% each year during this period. In this case, this means that the return period of your investment in the house will increase to 14 years. In total, the value of your investment will approach 9 million TL, assuming you don’t put the rent you earn into an investment vehicle. Of course, in addition to many things such as annual inflation, the rate of increase in the exchange rate, many variables such as the decrease that may occur in the increase in value due to the aging of the house must also be included in the calculation. But it is possible to sum it up like this with a simple definition. Let’s do a similar calculation for a stock. Let’s say you have invested 2 million TL in shares of a company. This means that you have become a partner in the profits of the company at the rate of your investment. Whether this profit is distributed by the company or not is another discussion. However, the price/earnings multiplier, like the housing rental multiplier, indicates how quickly the annual profit of the business will pay off the total market value of the business. For example, if the stock has a P/E of 10, then it is based on the assumption that the company will generate enough profit to amortize your investment within 10 years, even if its profit remains constant. This company will have the potential to recoup your investment in 7.5 years if it generates a 10% increase in profit each year. Therefore, this means higher return potential for falling f/k stocks.
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