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. In fact, I 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…
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.
In fact, I 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’d be taking a closer look here at two shares which are near their respective 52-week highs.
1. ComfortDelgro Corporation (SGX: C52)
The transport play reached a 52-week high of S$2.54 just last week and is currently within touching distance of it at its current price of S$2.50.
Most people living in Singapore might be familiar with ComfortDelgro as a taxi operator here with its massive fleet of blue- and yellow-coloured taxis prowling the streets. But besides dominance of the local taxi scene, ComfortDelGro actually leads in more ways than one: 1) the company’s majority-owned subsidiary SBS Transit (SGX: S61) is Singapore’s largest public bus service operator; 2) the company is actually one of the global leaders in land transport with a fleet of more than 46,000 buses, taxis and rental vehicles.
Comfort DelGro currently operates in seven countries (including Singapore, China, and the United Kingdom) across three continents and in fact, generates about 50% of its revenue and profit from foreign shores outside of Singapore.
The company is not just a pure-play on providing transport services as it also has vested interests in other types of transport-related businesses like its subsidiary, Vicom (SGX: V01). Vicom provides inspection and testing services for all types of vehicles as well as for other industries such as Oil & Gas, Aerospace, Marine, and Construction, amongst others.
Meanwhile, the recent sea change to the public bus industry, which would see the government take over ownership of the related assets and infrastructure from incumbent operators, have caused a nice rally in SBS Transit’s price. The changes would very likely transform SBS Transit’s business model into an asset-light one and thus free the company from the suffocation caused by the high need for capital in acquiring and maintaining the required assets and infrastructure to run public bus services.
Currently, ComfortDelgro is trading at close to 20 times its trailing earnings and has a dividend yield of 2.80%
2. MTQ Corporation (SGX: M05)
At the time of writing, shares of MTQ Corporation are trading at S$1.81 apiece. The offshore engineering solutions provider saw a 52-week high of S$1.83 (adjusted for a recent bonus issue) just yesterday.
MTQ has two business divisions– the Oilfield Engineering Division, and Engine Systems Division. The former is involved in oilfield equipment repairs and rental operations; in here, the company caters to a wide range of customers in the oil and gas industry, including the big wigs such as ExxonMobil, ConocoPhillips, and Halliburton. Elsewhere, the Engine Systems Division houses the largest aftermarket authorized service supplier of turbochargers and diesel fuel injection parts and services in Australia.
Within a short span of 2 years, MTQ Corporation’s shares have gained a noteworthy 246%. The share price gains haven’t come about in a vacuum though; between the financial year ended 31 March 2011 and the last 12 months, MTQ’s profit has more than doubled from S$10.6 million to S$24.2 million.
Despite its share price increase, the firm is still valued at a historical PE (price/earnings) ratio of only 12, which is below the general market’s PE ratio of around 14. MTQ Corporation also sports a dividend yield of 2.0%.
As previously mentioned, investors are often troubled by the fact that shares at their respective record highs may drop or pull back a great deal after any perceived euphoria is over.
But, it’s good to keep in mind that, over the long run, great companies will still break new ground for their share prices as long as their business fundamentals remain intact. Are ComfortDelGro Corporation and MTQ Corporation such great companies though? Perhaps, only time will tell.
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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 contributor James Yeo doesn’t own shares in any companies mentioned.