How to Compare NGX Stocks: Returns, Liquidity & Valuation

This guide shows you how to compare stocks listed on the Nigerian Exchange (NGX) by three key metrics: returns (how much profit the stock has generated), liquidity (how easily you can buy or sell it), and valuation (whether the price is cheap or expensive relative to earnings). You’ll learn where to find the data, which formulas to use, and how to weigh each factor for your investment decisions. No prior finance background is needed, but a basic understanding of percentages and ratios helps.

What You’ll Need

• Access to the NGX website or a financial data provider that lists NGX stocks (e.g., NGX Exchange official site, stock market apps, or financial news sites).
• A spreadsheet program (like Excel, Google Sheets) or a calculator for the math.
• For each stock you want to compare: current price, earnings per share (EPS), dividend per share (if any), and trading volume or turnover for the last few months.
• Optional: a list of stocks you’re interested in, to keep the comparison focused.

Step-by-Step

1. Choose your stock list. Pick 3-5 NGX stocks you want to compare. For a fair comparison, they should be from the same sector (e.g., banking, consumer goods) or at least similar in size. Write them down in a spreadsheet with columns for each metric.
2. Collect returns data. For each stock, find the price one year ago and the current price. Also note any dividends paid during that year. You can get historical prices from NGX data or financial portals. Calculate the total return using the formula: Total Return = (Current Price – Previous Price + Dividends) / Previous Price × 100%. This gives you the percentage return over the past year. Record this in your spreadsheet.
3. Collect liquidity data. Liquidity measures how easily you can trade the stock. The most common proxy is the average daily trading volume (number of shares traded per day) or turnover (value in naira). Look up the average daily volume for the last 30 days or 3 months. You can find this on NGX’s daily report or market summary. Write down the average daily volume for each stock. Higher volume means better liquidity.
4. Collect valuation data. The most widely used valuation metric is the Price-to-Earnings (P/E) ratio. Find the current price and the earnings per share (EPS) for the last 12 months. EPS is usually reported in the company’s financial statements or on data sites. Calculate P/E = Current Price / EPS. A lower P/E may indicate the stock is undervalued relative to its earnings. Record the P/E for each stock.
5. Normalize the data. To compare across stocks, you need to put each metric on a comparable scale. For returns, use the percentage you calculated. For liquidity, you might use the average daily volume in millions of shares. For valuation, use the P/E ratio as is. If you want to compare liquidity across stocks of different prices, you can also use the turnover value (price × volume) in naira.
6. Create a comparison table. In your spreadsheet, make a table with rows for each stock and columns for: Total Return (%), Average Daily Volume (shares), and P/E Ratio. Fill in the numbers you calculated. This table is your core comparison tool.
7. Analyze the results. Look at the table and rank the stocks on each metric. For returns, higher is better. For liquidity, higher volume is better. For valuation, lower P/E is generally considered better (cheaper), but always check if the low P/E is due to declining earnings. Consider what matters most to you: if you need to sell quickly, liquidity is crucial; if you’re a long-term investor, returns and valuation may dominate.
8. Make a weighted decision. Assign a weight to each metric based on your investment style. For example, a long-term value investor might weight valuation 50%, returns 30%, and liquidity 20%. Multiply each stock’s metric by the weight and sum to get a composite score. The highest score is your top pick. This is a simple way to combine the three factors.

Common Mistakes

• Mixing up return calculation: Forgetting to include dividends in the return. If a stock paid a dividend, excluding it understates the true return.
• Using wrong EPS: Using the latest quarterly EPS instead of the trailing twelve months (TTM). Always use the last four quarters of EPS for a consistent P/E.
• Ignoring liquidity context: A stock with high daily volume but a very wide bid-ask spread may still be hard to trade without affecting the price. Volume is a proxy, not the whole story.
• Comparing P/E across sectors: A bank’s P/E of 5 might be normal, but a tech company’s P/E of 5 could signal trouble. Always compare P/E within the same sector.
• Overlooking negative earnings: If a company has negative earnings, the P/E is undefined or negative. In that case, use a different valuation metric like Price-to-Book (P/B) ratio.

Tips

• Use a consistent time period: For returns, use exactly one year to make comparisons fair. For liquidity, use the same number of days (e.g., 30 days) for all stocks.
• Look at trends: A single year’s return can be misleading. Check 3-year or 5-year returns if you can, to see the stock’s consistency.
• Check the bid-ask spread: If you have access to a trading platform, note the spread. A narrow spread (e.g., 1 kobo) indicates better liquidity than a wide one (e.g., 10 kobo).
• Use free data sources: The NGX website publishes daily market reports with volume and price data. Many financial sites also provide historical data for free.
• Consider dividend yield: If you’re income-focused, add dividend yield (annual dividend / price × 100) to your returns analysis. It’s part of total return.

Troubleshooting

• Data not available for a stock: Some NGX stocks have thin coverage. Try the NGX’s official data page or the company’s investor relations section. If you still can’t find EPS, use the P/B ratio instead, which uses book value per share (available from annual reports).
• Stock has no dividends: If a stock doesn’t pay dividends, just set dividends to zero in the return formula. That’s fine.
• P/E is negative: This means the company is losing money. Don’t discard the stock immediately; instead, look at other valuation metrics like P/B or Price-to-Sales. For comparison purposes, you can assign a high P/E (like 999) to indicate it’s not meaningful, but better to note it as “N/A” and exclude from ranking.
• Volume data seems too high or too low: Double-check the units. Some sources report volume in units, others in thousands. Make sure you’re consistent across all stocks.
• Prices change during your analysis: Stock prices move every second. Use the closing price on a specific date for all calculations to keep them consistent. Note the date you used.

Frequently Asked Questions

What is a good P/E ratio for NGX stocks?

There’s no universal number. Historically, NGX stocks have traded with P/E ratios between 5 and 15, but it varies by sector. Compare a stock’s P/E to its sector average and its own historical average.

How often should I update my comparison?

At least quarterly, after companies release earnings. Prices change daily, but fundamentals like EPS update less frequently. A monthly check is a good balance.

Can I compare a bank stock to a consumer goods stock?

You can, but the comparison is less meaningful. Different sectors have different growth rates, risk profiles, and typical P/E ranges. Stick to same-sector comparisons for valuation, but returns and liquidity can be compared across sectors.

What if a stock has very low liquidity but great returns?

That’s a red flag. Low liquidity means you might not be able to sell when you want, or you’ll have to accept a lower price. Consider whether the potential return justifies the liquidity risk.

Is a lower P/E always better?

Not always. A low P/E might mean the market expects earnings to decline. Look at the earnings trend. If earnings are growing, a low P/E is attractive; if they’re falling, it might be a value trap.

Where can I find historical price data for NGX stocks?

The NGX website has a data portal with historical prices. Many financial news sites like Nairametrics, Proshare, or investing platforms also offer free historical data. Your stockbroker’s platform may also provide it.

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