I did a quick update on my portfolio. Slight dip in the overall unrealised gain over the past week, as some of the counters went Ex-Dividend (XD).
While doing the tabulation, I decided to add in the various financial ratios for reference as well. However, it is just a brief study – more in-depth study in comparison to other companies in similar industries and a thorough understanding of the narratives of each of the companies is imperative to get the full picture (don’t think a single blog post is sufficient). Note: Lyxor Japan 10 ETF is excluded in this study.
1) P/E ratio. I noticed that the P/E ratios of Golden Agri, SIA and SMRT are relatively high. Golden Agri and SIA are cyclical stocks. So a better gauge would be the Price to Book ratio. In this case, Golden Agri would appear under-valued. SMRT high P/E warrant some concern.
2) Price to Book: Price to book values of Vicom, Super Group, Riverstone, Sarine Tech and SMRT appear high. For Vicom, Super Group, Riverstone and Sarine Tech, the high Price to Book ratios would be understandable due to their growth stock status. SMRT high price to book is due to the oil price crash, fare hikes and also possibly due to the recent SMRT and OMG team up in bidding for Singapore’s 4th telco licence.
On the low side: Property stocks (eg. CapitaLand and Sun Hung Kai) are generally cheap (low Price to book), and Share price in comparison to Net Asset Value (NAV) is relatively low. However I probably want to stay away from Sun Hung Kai for the moment due to the recent run up in the Hong Kong market. CapitaLand share price could also be influenced by the run in Shanghai / China market. Golden Agri the perpetual lagger. Well, I can’t foresee what is next for Crude Palm Oil prices (and crude oil price). Very cheap for the moment. However will be looking closely at Golden Agri’s current ratio.
3) Price to Sales: The lower the ratio, the better since the investor is paying less for each unit of sales. Tricky ratio to evaluate, since PSRs vary greatly from sector to sector. Nevertheless, CapitaLand, Vicom, Sun Hung Kai and Sarine Tech have relatively high PSRs, while Golden Agri, Colex, SIA and ISOTeam have relatively low PSRs.
4) Dividend Yield: One of the favorite ratio for many investment bloggers (from what I’ve read). I do not really focus on the on high dividend yield when I look at the company financials. I am more concerned about the ability of the company in increasing cash flow / earnings. It is nevertheless an important ratio (esp. for mature slow growth companies). If there is little dividend yield for mature companies, another good sign is share buybacks (provided it is not for issuance of Treasury Shares for their own management/employees later one. I do not have very high dividend yield stocks as you can see. I have no REITs or Business Trusts. On some days, I might consider myself more of a GARP investor. Nevertheless, the better yielding stocks would be CapitaLand, Vicom, Sun Hung Kai, Riverstone and Sarine Tech. ISOTeam stands out for its low dividend yield.
5) Return on Equity: I gave Earning per Share a miss since it is hard to gauge. EPS must be viewed relative to the stock price. Eg. SIA has a high EPS, but when one considers the high stock price of SIA vs Vicom’s, the EPS of Vicom would appear much more attractive. Ok back to ROE. The better performing stocks with high ROE would be Vicom, Riverstone, Sarine Tech and ISOTeam. Well, technically I consider them as high growth stocks with high ROE. The other figure that one might consider useful is the Compound Annual Growth rate of the EPS (CAGR) – normally can get only 5 years CAGR. A company with both high ROE and high EPS CAGR would be ideal (however not too high eg. >30%, as it would raise questions on its sustainability).
On the other end of the spectrum, the stocks with low ROE are CapitaLand, Golden Agri and SIA (and even Sun Hung Kai). These are big mature companies with little growth. Only consolation is that CapitaLand and Sun Hung Kai has ok dividend yield.
6) Debt/Equity ratio: Each industry has different debt to equity ratio benchmarks. I generally like companies with low or zero debt. As what many value investors would say, what is important is to consider the downside risk first (rather than the potential upside). In the event of any market downturn or any other catastrophic events, a company with little or no debt is very unlikely to go under. CapitaLand and SMRT have relatively high Debt/Equity ratio. CapitaLand’s high Debt/Equity ratio is understandable as it is a property developer (need to use leverage), and its debt/equity ratio in comparison to its peers in the same industry is acceptable. SMRT needs extra attention.
7) Current ratio: The current ratio is an indication of a firm’s market liquidity and ability to meet creditor’s demands. Acceptable current ratios vary from industry to industry and are generally between 1.5 and 3 for healthy businesses. Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations. Golden Agri, SIA and SMRT low ratios appear worrisome. Nevertheless SIA is a very cash rich company (though it is operating in a very competitive industry).
In gist, as mentioned earlier, this is just a quick overview. SMRT and SIA require more monitoring (each has 4 yellow boxes, which is more than the others). Nevertheless, seems like the narrative (and earnings) for SMRT has improved in recent times.
On the other hand, an obscure stock like Colex seems to have better financials. Only problem is that it is very illiquid, so purchasing the stock at the quoted price is tricky at times. I can log in a trade in the morning and when the market close in the evening, my position would have expired (and the share price has not changed).
Hey great evaluation there. Do you mind sending me a soft copy of this excel template where you did the tabulation?
Hey great evaluation there! Do you mind sending me the template you used which tabulates the financial ratios of diff stocks?