Top 3 Best Shares to Buy in Nepal in 2022

Let’s first jump into how we’ve selected the “Best Shares to Buy In Nepal“. There are a lot of factors that we can consider when buying a stock, like P/B Ratio, P/E Ratio, ROE, Profit, Growth, Debt and many more financials. If you have no idea what all or some of them meant, don’t worry, we’ll cover that. If that is not enough, factors outside of company like your risk tolerance, your investment duration, your cashflow requirements and various other factors also play a massive role in selecting what might be the “best shares to buy”.

We have not covered each and every case, it would be too exhaustive and completely out of the scope of this article. This article is supposed to be a starting point for you to understand how different factors play in when you’re selecting best shares for you to buy. For the purpose of this article, we have picked the shares with assumption that we’re not every active trader, we will hold the shares for at-least a year, and we’re not day trader/swing trader. Or in simpler terms, these are safe bets with a good possibly of higher returns compared to other companies in the same industry.

Factors Considered In Selection of Best Shares to Buy

We’ve gone with the basics while selection of shares as the “Best”. These are very widely used and it’s understanding these will help you a lot while selecting the shares for you’re portfolio.

1. P/B Ratio
2. P/E Ratio
3. ROE
4. EPS
5. Borrowing/Debt
6. NET Profit
7. Dividend

Let’s see what each of these means:

P/B Ratio

P/B Ratio stands for price to book ratio. Price is the current price at which the stock is trading, the book value is the actual book value of the company. Generally, the price is higher than the book value because companies are expected to grow, pay dividends and appreciate in value. Calculating the P/B Ratio of the company is very simple. You can just divide current price by book value, and you have your P/B Ratio

For example, the LTP(Last Traded Price) of NABIL Bank is 832 and the book value of NABIL is 190.29, hence the P/B Ratio of NABIL is 832/190.29 = 4.37

So what does P/B Ratio signify? Generally speaking, it can be thought of as how much the traders think a company can be worth. A P/B Ratio that’s less than 1 means that the company is undervalued, usually it is a good bet, but it may also mean that there are some issues going on with the company, and the company is going downhill. For value investors, a P/B Ratio of under 3 seems a good bet. But take NABIL for example, it’s P/B Ratio is 4.37, that means it is trading at a price 4.37 times it’s actual value! It suggests that investors trust NABIL bank and think it’s going to do great in the future. Hence, P/B Ratio itself is a good starting point to look or not look further into a stock, but it’s not the end game for selecting “the best share” to buy.

P/E Ratio

P/E Ratio tells how much people are willing to pay for NRs 1 earnings of the company. It can be easily calculated by dividing share price of a company by it’s earning per share over a designated period, like the last 12 months, or last 3 months for quarterly P/E ratio. Typically, a higher P/E would be considered bad, and lower P/E would be considered good, but that’s not always the case. A higher P/E also means that people are interested in the company and the stock is a growth stock, whereas a low P/E company can be considered a value stock. Let’s look at an example.

Again, let’s consider the company of this guide, NABIL Bank. The EPS of NABIL Bank is 24.16, and the price of NABIL is 832, so to get P/E Ratio, we calculate 832/24.16 = 34.4.

So, what does P/E ratio signify? From Industry standards, the P/E ratio of 34.4 seems bad, there are banks with less than half of that P/E Ratio. But that doesn’t necessarily mean NABIL is a bad stock. NABIL can be a growth stock, whereas some other banks with much lower P/E ratio can be value stocks. Which one is best share for you to buy depends on what your personal goals are.

ROE

ROE tells us how much profit a company generates with the money invested by shareholders in the company. Instead of just looking at the profits, it’s better to consider the cost at which the profits came, hence ROE is a better indicator than just plain old gross profit. ROE can be calculated using dividing net incoming by equity. Equity of a company is total assets – total debt. Hence, ROE can be considered return on net assets.

Let’s consider the example of NABIL again, the total shareholders equity for the 3rd quarter of 2078/79 was 35,195,503, and for the same period net income was 4,469,828, so the ROE for the period is 4,469,828/35,195,503 = 0.126, hence the ROE is 12.6%.

So what does ROE signify? It gives you a gauge of company’s profitability and how efficiently that company generates those profits. Again, just like P/E ratio and P/B ratio, ROE also has to be compared to other companies in the sector and market situation. The average ROE of banking sector is 10.78% hence clearly, NABIL has beaten the sector average. However, ROE too, is not the whole story and you’ll have to dig deeper, as discussed in the next section.

Debt

Debt is simply the money that a company has borrowed. The company owes the debt to another organization, generally with added interest. Most common forms of debt are loans, however it may also extend to properties, mortgages, and services.

Generally, an average investor skips looking at the debt. However debt can significantly skew various other indicators like EPS, ROE and more. Let’s take example of ROE, ROE of a company can be inflated due to more debts, as debt deflates equity. i.e Equity = assets – debt, the greater the debt, the less the equity as ROE becomes greater even if the earnings has not increased, but just debt has increased. Hence, once you’ve shortlisted a company using it’s P/E Ratio, P/B Ratio, ROE and other factors, don’t miss out to take a look on it’s debt to see how the other financials are effected by debt.

NET Profit Growth

This is self explanatory, here we just see how the net profit is growing of a company. Is it lower compared to other companies in the sector, is it in line with them, or is it greater than other companies in the sector.

Taking the example of NABIL, the net profit of the company has decreased by -8.91%. For banking sector, the YoY Profit Change is 9.86%. That means NABIL bank has under-performed the banking sector. Note that the ROE of Nabil was higher than industry average, yet the profit growth was lower than the industry average.

We might want to look into deeper details, like why did the profitability decrease? Did the company focus more on growth this year and not profitability? Did the company pay off debt?

Profitability is key to survive in the industry, but a constantly regular profitability might also indicate low growth endeavors and relatively conservative operational approach.

Dividend Yield

As you probably already know, dividend is the earning of the company, which is distributed to the shareholders. In can be paid out quarterly, semi-annually, or annually. But in Nepal, it’s mostly paid annually.
Dividend Yield of a company is the dividend per share. Dividend yield is expressed in % value. Unlike many international exchanges, in NEPSE, the cash dividend yield % is not on the price of the share of a company, but it’s calculated on par value. Par value is commonly the price at which the IPO of a company was issued. So for many companies, the par value is 100NRs.

Taking the example of NABIL bank, it distributed a very respectable dividend of 38% for the year 2078/79. The dividend is divided into 33.6% bonus share and 4.4% cash divided. So the cash dividend of 4.4% is not given on the price of the share 832NRs, it’s given on the par value, that is 100 NRs, so you’ll get 4.4 NRs per share you hold of NABIL.

NABIL has provided a bonus share of 33.6%, it signifies that the company is more focused on growth, hence instead of distributing more cash dividend, it has distributed bonus shares so that it can has excess cash for growth operations.

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Top 10 Highest Dividend Paying Companies in Nepal

Best Shares to Buy in Nepal

So, according to various financials discussed above, we’ve compiled a list of some companies that do good in most of the sectors, these companies offer moderate to high growth at a low risk. The two of the stocks, MBL and MLBL can be considered value stocks, and NGPL can be considered a growth stock affording to the data.

Company	P/B Ratio	P/E Ratio	ROE	EPS	YoY Profit Growth	Dividend
Macchapucchre Bank Limited [MBL]	1.78	13.45	14.11%	20.17	20.24%	14%
Mahalaxmi Bank Limited [MLBL]	2.44	14.60	18.22%	23.74	76.98%	21.0526%
Nyagdi Group Power Limited [NGPL]	2.87	72.99	15.97%	10.27	93.9%	21.05%

Let’s look a little deeper into all of these companies.

1. Macchapucchre Bank Limited [MBL]: The PB Ratio of MBL is lower compared to other companies in the banking sector. This is a green sign to look into the company further, we see that the EPS is also in line with other banks, however the P/E ratio is low, which might suggest the company is not expected to grow much. However, the YoY profit growth of 20.24% is good, it’s not outstanding compared to other banks, but it’s good for a company with such low P/E Ratio and the dividend of 14% also falls among an average dividend payout in the sector. So, MBL doesn’t appear like an outstanding grower or doesn’t have any numbers to boast, but it ticks all the right boxes and appears a good value for the long run.
   
2. Mahalaxmi Bank Limited [MLBL]: Doing the similar analysis that we did for MBL, the PB ratio of MLBL is higher at 2.44, i.e it’s trading at a price 2.44 times higher than it’s book value. It might look like a red sign for MLBL, however for companies in the sector, it’s below average. Again, the P/E is much lower than industry average and an ROE of 18.22% for such low P/E makes MLBL even more attractive. Looking at the growth perspective, the YoY growth of profit is 76.98%, that’s a very good number for a company with non-increasing debt. Looking at the dividend, the company has provided 20% bonus shares that means that the company is focused on growth. Looking at the combination of all these numbers, it appears that MLBL in a good stock for the price, and it is committed enough for it’s future growth too. There’s less to go wrong with if you choose MLBL.
   
3. Nyagdi Group Power Limited [NGPL]: This is a riskier choice as compared to the other two companies we’ve discussed, especially when compared to MBL. The PB Ratio of 2.87 shows the company is trading at 2.87 times it’s book value. However, it’s not higher than the industry average. It is a relatively new company and it is supposed be aggressive in it’s growth strategies. The P/E ratio of 72.99 shows that the people are largely interested in the company and expect it to grow too. Again, as expected, the company has grown it’s profits 93.9% compared to the last year, and from the bonus shares it distributed of 20%, it appears that the company is focused on growing for the coming year too. The relative low P/E Ratio for a growth stock and the company’s profit increase make this a good growth stock pick, albeit a little riskier than the two stocks we’ve discussed earlier.

You might also like:
Top 10 Dividend Paying Companies in Nepal
Top 5 Undervalued Shares in Nepal

Forecasts of Best Shares to Buy

Let’s see the forecast of the picked best shares to buy, the forecasts are for a 12 month period:

Company	LTP	Min Price	Max Price
MBL	246.2	188	314
MLBL	385	281	539
NGPL	219	297	398

Conclusion

In this post, we’ve seen how we can pick stocks for our portfolio. This can be a good starting point for you to learn how you can pick stocks for your portfolio. Certainly, there can be a lot more consideration and lot more to dig into, but for the scope of this article, the discussed topics are a good starting point. There can be various factors inside and outside of a company when you’re trying to figure out which share is best for you to buy! Do let me know any comments or queries that you might have in the comment section below, cheers!