A stock screener can sort Nigerian companies from the lowest price-to-earnings ratio to the highest in seconds. Turning that list into a sensible valuation comparison takes longer.
Imagine a bank trading at four times earnings and a manufacturer at eight times. It is tempting to say the bank is half as expensive. The arithmetic describes what investors pay for reported earnings, but it tells you little about how dependable those earnings are or how much capital the businesses need.
P/E remains useful. The mistake is asking it to make the whole decision.
First, inspect the earnings underneath
Price-to-earnings divides the share price by earnings per share. A trailing multiple uses past earnings; a forward multiple uses a forecast. Comparing one with the other creates a false sense of precision. A company with negative earnings does not become exceptionally cheap because its P/E is negative.
Check whether the EPS belongs to the listed group’s ordinary shareholders and whether the share count reflects recent issuance or other corporate actions. Avoid multiplying one unusually strong quarter by four without considering seasonality or exceptional items.
Nigerian results provide a clear reason to examine the notes. In its 2025 results announcement, GTCO said ₦517.5 billion of fair-value gains recognised in 2024 did not recur in 2025. That is a documented example of why comparing headline profits across years requires an explanation of their composition.
Normalising earnings means making a transparent estimate of repeatable profit. It should not become an excuse to remove every inconvenient expense. Recurring restructuring costs, credit losses or maintenance spending still belong in the economic picture.
For a current reporting-period example, our analysis of GTCO’s H1 2026 earnings per share separates the effects of profit, tax and the weighted-average share count.
For banks, connect price-to-book with returns
A bank uses its balance sheet to earn income. Deposits, loans, securities and regulatory capital are central to the business. Treating every deposit as ordinary corporate debt, then applying an industrial-company enterprise-value formula, can produce a misleading result.
Price-to-book compares the market value of ordinary equity with its accounting book value. Return on equity asks how much profit that capital generates. Read them together, using consistent definitions. Aswath Damodaran’s valuation framework links price-to-book to profitability and other fundamentals rather than treating a discount to book as automatic undervaluation.
Suppose two hypothetical banks trade at 0.7 and 0.9 times book. If the second sustainably earns much more on its equity, has cleaner loans and needs less additional capital, its higher multiple may have an economic explanation. Equally, an impressive ROE may reflect thin equity or a temporary gain.
Read the non-performing-loan disclosures, impairment coverage, concentration of borrowers, capital adequacy and funding costs. Compare post-tax ROE with post-tax ROE, and note whether the denominator is average or closing equity. A bank that has recently raised capital may need time to deploy it.
Also keep regulatory capital separate from accounting book equity. The CBN’s recapitalisation FAQ distinguishes the paid-in capital recognised for its minimum-capital programme from reserves considered in capital-adequacy calculations. These are different measurements serving different purposes.
For industrial businesses, follow cash and reinvestment
A manufacturer must fund inventories, receivables, equipment and replacement capacity. Two companies can report similar profits while leaving shareholders with very different amounts of cash after those needs are met.
Begin with operating cash flow, then examine capital expenditure and the debt required to finance expansion. Separate spending that maintains the existing business from spending intended to grow it, while acknowledging that companies may not disclose a clean split.
Dangote Cement’s 2025 financial statements, for example, present EBITDA separately from depreciation, finance costs and tax. EBITDA can help compare operating performance, but it does not capture all the cash commitments that stand between operations and shareholders.
For Nigerian industrial companies, the review should also cover imported inputs, foreign-currency obligations, energy costs and the ability to pass cost increases to customers. A low multiple based on peak margins can become a much higher multiple when those margins normalise.
The same reinvestment question runs through Dangote Cement’s Itori and 2030 capacity plan: planned growth has to be assessed alongside its cost, cash requirements and delivery timetable.
Build a comparison you can defend
Start with businesses whose earnings drivers and risks are reasonably similar. Use the same reporting period and valuation date. Explain exceptional items, check balance-sheet strength, and write down what would have to remain true for the current earnings to continue.
You may still conclude that a low-P/E company is attractively valued. The useful conclusion comes from understanding its earnings and risks, rather than from its position at the top of a sorted column.
Image: A financial calculator. Illustrative photograph by Mr Yukio / Wikimedia Commons, licensed under CC BY-SA 4.0. Wikimedia-provided 960px rendering; no local visual edits.
