European P/E Superstars – stocks with low short interest trading on racy P/E multiples

Another global market sell-off saw the Stoxx Europe 600 fall to a new annual low with average short interest increasing across the Index by a staggering 31% over the past month to 2.8%. This prompted us to follow up last week’s analysis of the NASDAQ 100 to consider professional investor appetite towards the top and bottom European companies ranked by P/E ratio. We have identified our P/E superstars, those stocks trading on racy multiples, which are seeing low short interest and we also highlight where short sellers and institutional investors are placing their bets amongst the stocks trading on the highest and lowest historical P/E multiples. The European P/E superstars include: Petroleum GEO (OSL:PGS), Amadeus IT Holding SA (MCE:AMS) and Tullow Oil (LON:TLW).

Highest P/E multiples

The average P/E ratio across the Stoxx 600 stands at 14.3 but this average jumps to 67.6 across the top 20 stocks with the highest P/E ratios. Of these top 20 stocks, we identified our P/E Superstars, which record a high P/E ratio and a low level of short interest: Petroleum GEO, Amadeus IT Holding SA, and Tullow Oil. The luxury brands, Bulgari Spa (BIT:BUL) and Hermes International (EPA:RMS) also qualify, however we have excluded them from our Superstars list in recognition of their limited free float, reducing the size of the lending pool.
Overall, the top 20 P/E ratio stocks show growing bearish sentiment from institutional investors as the average institutional ownership of these stocks has fallen by 2.8% over the past month to 14.7%, which is below the Index average of 17.5% of the total market capitalization.

Short sellers are not especially focused on stocks with the highest P/E ratios – a very different scenario from that witnessed when we screened the NASDAQ 100 last week. The average short interest amongst the 20 stocks with the highest P/E ratio in the Stoxx 600 is 2.9%. This is only marginally higher than the index average, although the top 20 average has declined by 9% over the past month.
 

Interestingly, those stocks with a high P/E ratio and above average levels of short interest also see institutional investors tending to be overweight the Index average of 17.5%. These stocks include German listed Wienerberger AG (WBAG:WIE), Deutsche Telekom AG (ETR:DTE) and Nobel BioCare-Reg AG (VTX:NOBN), and UK listed ARM Holdings Plc (LON:ARM), Grifols SA (MCE:GRF) and SGL Carbon SE (ETR:SGL) which are the most shorted stocks of this set with high P/E ratios, however, institutional investors are underweight the Index average in these two.

Low P/E multiples

The average short interest in the 20 shares with the lowest P/E ratios stands at 2.7% of total shares, slightly below the Index average. While this has increased 9.0% over the month, the rate is still well below the average monthly rise across the Index of 31%.
Most of this group see low levels of short interest, however there are a number of heavily shorted stocks including Peugeot SA (EPA:UG), Marine Harvest ASA (OSL:MHG) and Pandora A/S (CPH:PNDORA), which has seen a 28% decline in short interest over the month.

Institutional investors who lend their shares have reduced their holdings over the month to hold 13.2% of the shares in this group, which is less than the index average of 17.5%. The stocks they are most underweight, when compared to the Index average, include Brisa (ELI:BRI), Raiffeisen Bank International (WBAG:RBI) and Pandora A/S.