According to a recent The Business Times article, the consumer confidence level in Singapore is at its highest over the past three years. The survey also shows that consumers are generally optimistic about the future of their jobs and finances.
With consumers seemingly feeling more optimistic about the future (and with it comes the implicit assumption that consumer spending might rise), what does this mean for investors?
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The return of consumer shares
There have been a number of shares which have businesses tied to consumer spending in Singapore that have not done well at all in 2014. For instance, there’sChallenger Technologies Limited (SGX: 573). The company sells electronics and IT gadgets in its namesake stores and its shares have fallen by close to 25% year to date. There’s also furniture and electronic appliances retailer Courts Asia Ltd (SGX: RE2), whose shares have declined by 45%.
With consumer confidence returning, does it mean that these consumer companies would see better days ahead? Unfortunately, there is no way of knowing for sure if the results of the survey can be translated to an actual increase in sales in the future for these companies.
Judging from their latest results, there’s also quite some work for both companies to do to improve their fortunes. In Challenger’s latest third quarter earnings, it saw a 16.2% decline in quarterly sales. As for Courts Asia, it too experienced a 2% dip in quarterly sales in its latest quarter. Courts Asia is also exposed to the health of Singapore’s property market and that might be an area of concern too given the softening market.
But, given their low valuations, any positive surprises in terms of their operating results may just lead to a rising share price. At their current prices, Challenger and Courts Asia are valued at a trailing price/earnings (PE) ratio of only 11 and 9 respectively. For some perspective, the SPDR STI ETF is trading at 13.5 times its trailing earnings currently.
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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 Stanley Lim doesn't own any shares of companies mention above.