For over a month, Lan, an office worker in TP HCM, has been noticing a technology stock whose price has dropped by about 20%. What troubles her is that the company reported increased profits in the latest period, yet its market price declined.

"If I buy now, I might get a better price than before, but I also worry the market is reflecting difficulties I haven't seen. I don't know whether to view this as an opportunity to buy or to wait longer", she pondered.

Lan's situation reflects a "familiar paradox" for many stock investors: businesses continue to grow profits, but their stock prices do not follow suit, sometimes even falling sharply. Double-digit declines can make stocks appear more attractive than before, but they do not confirm whether they are truly a bargain.

In a recent dialogue with investors, Vietcombank Fund Management Company (VCBF) stated that many stocks in its portfolio recorded increased revenue and profit growth in the first nine months of the year, but their market prices remained flat or decreased. Looking broadly across the market, 301 out of 401 VN-Index component stocks have fallen in price since the beginning of the year, representing about 75%. The median decline was 13,2%, while the median profit growth for these businesses reached 18,2% in Q1 and 20,9% in Q2.

Investors observe the electronic board at the headquarters of a securities company in TP HCM. Photo: An Khuong

In reality, a gap between profit and market price does not mean every deeply discounted stock is a bargain. The price displayed on the electronic board reflects not only announced business results but also expectations for future years. If investors anticipate profits will slow, profit margins will narrow, or financial costs will increase, a stock can still decline even if the company just had a good business period.

A common way to assess whether a stock is expensive or cheap is based on its P/E valuation, which indicates how much investors are paying for each dong of profit the company generates. A lower P/E is generally more attractive if profits are stable. However, even when overall valuations are low, the level of attractiveness varies among stocks.

This was highlighted in a recent report by Dragon Capital. As of the end of September, the VN-Index traded at a P/E of 13,5 times based on the last 12 months' earnings. However, five stocks—VIC, VHM, VPL, STB, and LPB—significantly impacted the index's valuation and performance. Excluding this group, the VN-Index decreased by 9,4% from the beginning of the year, and the P/E was 11,4 times.

Dragon Capital assessed the correlation between expected profit and risk at this level to be relatively attractive. However, the valuation improvement process may require more time until deposit interest rates cool down.

The September report from Thien Viet Securities (TVS) also noted the VN-Index P/E at 12,1 times, lower than the five-year average of about 13,8 times. While the market valuation is relatively attractive, TVS cautioned that the potential for improvement is limited as foreign capital continues net selling and liquidity remains weak. The average trading value on HoSE in September decreased to nearly 16,500 billion dong per session, the lowest level since 2/2025. TVS did not rule out the possibility of the P/E further narrowing to the 11,5-12 times range in October.

Therefore, a low valuation can present an opportunity but does not guarantee that stock prices will recover soon. For each company, investors must still investigate the reasons for the market price decline and determine if the current price fully reflects those risks.

The VN-Index P/E decreased to 12,1 times at the end of September, lower than the five-year average. Source: Fiinpro-X, TVS

Nguyen Trieu Vinh, Deputy Director of Investment Block at VCBF, stated that the two core criteria when selecting stocks are strong fundamental foundations and attractive valuations. The fund focuses on management capabilities, competitive advantages, the ability to increase market share, and financial health, prioritizing companies with low debt in a high cost-of-capital environment.

Individual investors can begin with three checks before deciding to buy a declining stock:

First is the quality of earnings. A company reporting increased profits may not have correspondingly improved its core business operations. Investors should examine whether revenue has increased along with profit, how profit margins have changed, and if cash flow from operating activities keeps pace with accounting profits. If profits primarily come from extraordinary income, while cash flow weakens or inventory and receivables increase rapidly, that growth needs to be viewed more cautiously.

Next is financial health. When interest rates are high, heavily indebted companies may face pressure from interest expenses and debt obligations, even if revenue continues to grow. Investors need to consider each company's cash flow, maturity schedule, and capital needs, rather than relying solely on a single indicator.

Finally is valuation compared to outlook. A low P/E ratio does not automatically equate to an opportunity. A stock might trade at a low P/E because the market forecasts declining profits, or because the company faces unresolved risks. Conversely, a stock with a higher P/E can still be reasonable if the company maintains strong growth and earnings quality for many years.

Another point investors need to consider is the holding period. It can take many months, or even longer, for a stock's price to reflect improvements in business operations. If using money needed for short-term expenses, investors might be forced to sell before the market recovers. "Investors should focus on good business fundamentals with a two to three-year outlook instead of a short-term view", experts recommend.

Overall, VCBF suggests that idle funds with an investment horizon of about three to five years could consider stocks in a reasonably valued range. Conversely, those who need to use capital within one year or prioritize safety should consider channels suitable for that need, such as bonds.

Tat Dat