Would Peter Lynch Buy StarHub Ltd?

Credit: StarHub

A previous article concluded that on a balance of probabilities Warren Buffett is unlikely to whip out his chequebook for StarHub Limited (SGX: CC3). But what would Peter Lynch make of Singapore’s third-largest telecom company?

Peter Lynch, who is reckoned to be a master of growth investing, looks for companies with stable earnings. He also has a bias for companies that can grow profits consistently. StarHub does not quite fit the bill. Over the last five years its Net Income has been clustered around S$320m, with little sign of growth.

Peter Lynch also looks at valuation. But he doesn’t look at the P/E ratio in isolation. Instead he compares the P/E ratio to the rate at which profits are growing. In the case of StarHub, with profits showing meagre growth, and a P/E ratio of around 20, Lynch is likely to take a dim view.

Apart from earnings growth and valuation, Peter Lynch also casts his eye over the balance sheet. In particular he likes companies with low levels of borrowings. StarHub has debts of around S$688m, which represents around six times shareholder equity. Lynch is likely to take a dim view of that too.

In its favour, StarHub pays a dividend. The current dividend yield of 4.8% is higher than the average for the Singapore market. However, Lynch could flinch at the payout ratio, which stands at over 90%.

As an income share, StarHub looks appealing. But Peter Lynch is not an income investor. And on that score, he could decide to give the company a miss.

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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.