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 This allowed me to spot brand-new opportunities rather than outdated finds.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.
The post I’d buy this FTSE 100 company after it hit its 1-year low appeared first on The Motley Fool UK.
Gabriel McKeown has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022