These 2 Shares May Have Room To Fall Further Despite Them Being Near Their 52-Week Lows

Shares which are near their 52-week lows often make for enticing targets for bargain hunters.

52-week low for Eu Yan Sang an SIA Engineering

Source: Yahoo Finance

But despite Eu Yan Sang International Ltd (SGX: E02) and SIA Engineering Company Limited (SGX: S59) being near their respective 52-week lows at current prices, both shares may still have room to fall further.

A high valuation

Eu Yan Sang and SIA Engineering are currently valued at 25.1 times and 22.5 times their respective trailing earnings.

In comparison, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks Singapore’s stock market barometer the Straits Times Index (SGX: ^STI), carries a trailing price-to-earnings (PE) ratio of only 13.7 at the moment.

A high valuation itself may not be cause for concern if a business can actually produce healthy corporate growth in the future. But this may be a problem for both Eu Yang Sang and SIA Engineering.

Declining earnings

Instead of experiencing growing earnings, both shares have actually been suffering from shrinking profits over the past year and more. This dynamic is apparent in the chart seen below.

Earnings per share for Eu Yan Sang and SIA Engineering

Source: S&P Capital IQ

Eu Yang Sang and SIA Engineering had both released their latest earnings report (for the quarter ended 31 December 2014) yesterday and you can find out more in here (for Eu Yan Sang) and here (for SIA Engineering).

A Fool’s take

None of the above is to say that Eu Yan Sang and SIA Engineering would make for poor long-term investments going forward as they could merely be experiencing temporary slumps in their businesses.

But given what we’ve seen, it’s still prudent for investors to bear in mind that high valuations and falling earnings have the potential to make for a powerful one-two punch on the down-side.

Bargain hunters would thus have to tread carefully with both Eu Yan Sang and SIA Engineering.

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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 writer Chong Ser Jing doesn't own shares in any companies mentioned.