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Would Peter Lynch Buy ARA Asset Management?

ARA Asset ManagementIf share price growth was Peter Lynch’s only consideration, then before you have even finished saying ARA Asset Management (SGX: D1R), the canny fund manager could already have snapped up shares in the company.

After all, ARA Asset Management has delivered a total annual return of nearly 30% since 2008.

But Lynch is more discerning that that. The growth investor would want to know a few more things about the business before he whips out his cheque book and pen.

For instance, he would want to know what the company actually does. That’s simple. In fact, it is easy enough to describe with a “Peter Lynch crayon”.

ARA is a Real Estate Investment Trust manager. It manages REITs to ensure that the properties provide the best bangs for shareholder bucks. Its current portfolio includes Fortune REIT (SGX: F25U) and Suntec REIT (SGX: T82U).

Currently, ARA Asset Management is value at around 18 times profits. That is neither cheap when compared to the market nor when measured against the company’s own historic average. That, by itself, is unlikely to deter Peter Lynch. But it could be better.

ARA Asset has a bit of debt – around S$4.8m at the last count, which is bordering on being insignificant. The company also has oodles of cash – some S$80m to be precise, which is likely to put the company in a good light with Peter Lynch.

Dividends would be something else that Peter Lynch is likely to pay close attention to. In the case of ARA Asset Management, the company pays out around half its earnings to shareholders. So, with a Retention Ratio of 50% and a Return on Equity of 29%, there could be more left in the tank.

ARA is indeed an interesting company. Its business model is not difficult to understand. It has plenty of cash and its dividend is adequately covered. If only it was a bit cheaper, though.

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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.