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Would Peter Lynch Buy Aspial?

aspial logoPeter Lynch, probably one of the most astute investors of our time, is looking for fast-going companies. These are businesses that ideally can grow at 15% a year.

From a top-line perspective, jeweller Aspial Corporation (SGX: A30) might fit the bill. Since 2003, revenues at the owner of Goldheart and Lee Hwa, have grown from S$127m to S$515m. That equates to an annual increase of 15%.

Over the same period Net Income has jumped from S$6.9m to S$67.5m, which is a growth rate of 25%. That said, earnings have been somewhat lumpy. In 2009, bottom-line profits fell from S$22.3m the previous year to S$9.1m. Profits fell again in 2010, this time to S$4.1m before recovering in 2011.

At the current share price of S$0.46, Aspial is valued at around nine times historic earnings. This is roughly in line with its long-term valuation. A P/E ratio of 9 coupled with a growth rate of 25% would imply a Price-to-Earnings to Growth ratio of 0.36.

A PEG ratio of less than one would most likely make Peter Lynch sit up and take note. It implies that the company is not expensive when judged against its potential growth. That is provided the growth is sustainable, though.

Peter Lynch is also looking for signs of a health balance sheet. Aspial has cash and cash equivalents of S$142m. But it also has debts of aroundS$1,010m, which leaves it with net debts of S$868m. That is unlikely to impress Mr Lynch.

Dividends are something else that Peter Lynch is keen to see. In particular, a long history of increasing payouts would be desirable. Aspial only started paying a dividend in 2011. The maiden payout of S$0.01 has increased to S$0.04.

The low payout ratio of 17%, when coupled with the company’s high Return on Equity of 23%, could imply that it has plenty in the tank to grow.

On the face of it, Aspial looks a good candidate for a Peter Lynch stock provided it is a pure-play retailer. But Aspial isn’t focussed on retailing. Around 50% of the company’s revenues come from property; about a-third is generated from its jewellery business and a-fifth from financial services.

That is likely to complicate matters, which makes it a little harder to illustrate the business with a crayon. That might just deter Peter Lynch.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.