Many people have the misconception that when a stock touches or reaches close to its 52-week high, there’s a barrier to how high it can eventually climb. However, what they miss is that any share that had recorded gains in the range of hundreds or even thousands of percent would have to exceed many record highs in order to reach their current prices. Here at the Motley Fool Singapore, we believe that it is the fundamentals of a business that provides the fuel to propel a share to hit new heights; if the fundamentals continue growing, it doesn’t…
Many people have the misconception that when a stock touches or reaches close to its 52-week high, there’s a barrier to how high it can eventually climb. However, what they miss is that any share that had recorded gains in the range of hundreds or even thousands of percent would have to exceed many record highs in order to reach their current prices.
Here at the Motley Fool Singapore, we believe that it is the fundamentals of a business that provides the fuel to propel a share to hit new heights; if the fundamentals continue growing, it doesn’t matter if the share is near its 52-week high.
In light of that, I’ll be looking at 2 shares near 52-week highs to ask an important question: Can they continue moving higher?
1. Isetan (Singapore) (SGX: I15)
According to its latest 2013 annual report, last year was another challenging 12 months for Isetan (Singapore). The company, which operates Isetan department stores and supermarkets in Singapore, had seen subdued sales at its flagship Isetan Scotts store due to major renovations undertaken by Shaw House (the mall where Isetan Scotts is located in) and the adjoined Shaw Centre.
Furthermore, issues such as intense competition from more malls being built in Singapore, the tight labour situation, and high rental costs are plaguing the company.
Nonetheless, on the brighter side of things, Isetan Jurong East had just opened in the Westgate retail mall late last year, marking the company’s first store in the western part of Singapore. At last count, Isetan now owns six stores in total in Singapore.
Currently, Isetan is trading at S$4.97 and is just 1% away from its 52-week high of S$5.02. Investors should take note that the company is valued at 50 times its trailing earnings at that price. That’s a valuation almost three times higher than the PE (price/earnings) ratio of 14 that the Straits Times Index (SGX: ^STI) has at its current level of 3,292 points. But yet, Isetan’s earnings have been declining (from S$12.3 million in 2011 to S$4.44 million in the last 12 months) and is not showing the kind of growth that usually accompanies shares with such high valuations.
With Shaw House and Shaw Centre’s renovation works completed in the first half of this year and the opening of Isetan Jurong East, can these developments spur the company’s results onto new heights and hence, pull its share price along for the ride? We can only wait and see.
2. Neo Group (SGX: 5UJ)
Having been around since 1992, the award-winning catering outfit Neo Group is a leading food catering group with 3 major business segments – Food Catering, Food Retail, and Catering Supplies. In an April 2012 report, Neo Group was ranked by research outfit Euromonitor International as the number one events caterer in Singapore in 2011.
Neo Group runs a total of 4 brands under its Food Catering segment that targets different markets, styles and prices. Neo Group’s catering brands include Neo Garden, Orange Clove, Deli Hub and the newly set up Best Catering. One impressive point about Neo Group’s catering operations is its ability to provide a buffet for up to 500 people if given just three hours’ notice.
Neo Group’s Food Retail segment sees the company running the highly successful Umisushi chain of affordable sushi outlets that often can be seen near train stations in Singapore. There are currently 18 Umisushi outlets island wide with the company having a target of running 30 such stores in Singapore by 2016. But that’s not all – Neo Group’s also targeting foreign shores. The company has signed franchise deals in Indonesia which would see it receiving monthly licensing fees that are pegged to the sales earned by Umisushi outlets in the country.
Shares of the company are currently selling for S$0.98, which is just a tad lower than its 52-week high of S$1.01. At its current price, it commands a P/E ratio of 22 and sports a dividend yield of 2.7%.
With its business initiatives – a new catering brand, international expansion, and some strong growth targets – Neo Group is certainly not resting on its laurels. Only time will tell if Neo Group can continue its success on all those fronts and bring its shares to new highs.
Over the long run, great companies will often see their share prices continue to break new ground as long as their business fundamentals remain intact. That is what investors should really be looking into instead of using just a share’s price movement to determine when to buy or sell.
Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.
The Motley Fool's purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.