European stocks are cheap, but risks remain

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European stocks are cheap, but risks remain
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Price/earnings ratios will look less attractive when earnings inevitably fall

Investors are wary of European stocks for reasons too obvious to mention, but there is some good news — European equities look increasingly cheap.

Callum Thomas of Topdown Charts describes the European equity space as “deep trouble, [but] deep value”. Europe’s combined price-earnings ratio — an average of three different valuation metrics — has fallen to “extreme cheap levels”, says Thomas, near levels seen at the bottom of the dotcom bust and 2020′s Covid-related crash.

Société Générale’s Andrew Lapthorne makes the same point, saying European valuations are the cheapest since the 2011-12 sovereign debt crisis. Additionally, Lapthorne’s data shows roughly one in five European stocks now trade in deep value territory — almost twice as many as in 2011-12. There is a “but”, however. Barclays agrees European stocks look “particularly cheap” but cautions p/e ratios will look less attractive when earnings inevitably fall. Thomas agrees European stocks will look less cheap if earnings fall fast.

 

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