6 Stocks with Cheap Valuations Worth Considering for Investment; Includes PTBA
Jakarta, CNBC Indonesia - Amid the rebound in capital market movements, searching for stocks with cheap valuations always carries its own risks for market participants, particularly the threat of getting trapped in stocks whose fundamentals are genuinely deteriorating.
To avoid such valuation traps, a comprehensive fundamental screening approach is required.
This approach not only seeks discounted stock prices but also ensures that the issuer has an efficient profit-generating engine, a robust financial balance sheet, and a commitment to distributing cash to shareholders.
Defensive Screening Metrics
To find stocks with cheap yet quality valuations, screening is conducted by combining valuation, profitability, solvency, and cash flow metrics.
The first step is using the EV to EBITDA ratio to assess the overall company price, as this metric already accounts for debt position and net cash.
Next, the stock’s quality is tested using Return on Equity (ROE) to ensure the company remains efficient in managing its operational capital.
To avoid problematic stocks, financial security is measured through a low Debt to Equity Ratio (DER) and an adequate Interest Coverage Ratio to ensure debt repayment capacity remains safe.
Finally, the Dividend Yield indicator is used to prove that the company’s profits are truly realised as actual cash distributed to shareholders in the form of dividends.
Lineup of Selected Undervalued Stocks
The application of this rigorous screening yields a list of emitters across sectors that are currently priced very conservatively by the market. The following is a recap of the related emitters’ fundamental data.
From the table, PT Multi Bintang Indonesia Tbk (MLBI) leads in capital efficiency with an ROE reaching 87%, yet it is traded at a multiple of six times EV to EBITDA.
In the energy commodities sector, PT Baramulti Suksessarana Tbk (BSSR) and PT Bukit Asam Tbk (PTBA) offer double-digit dividend yields exceeding 11%.
Specifically for BSSR, its solvency level is exceptionally strong with an interest coverage ratio exceeding 1,000 times, indicating the company operates with virtually no interest-bearing debt burden.
In the manufacturing, pharmaceutical, and supporting infrastructure sectors, emitters such as PT Arwana Citramulia Tbk (ARNA), PT Citra Tubindo Tbk (CTBN), and PT Tempo Scan Pacific Tbk (TSPC) exhibit identical fundamental profiles.
All three record ROEs in the teens to twenties percent with discounted EV to EBITDA valuations in the range of four to six times. Their DER indicators below 0.2 levels affirm that their expansion and operations are fully funded through strong internal cash.