Would Peter Lynch Buy Thai Beverage Public Company Limited?

Peter Lynch once said that the investor who turns over the most rocks will find the most grubs. He was referring to the importance of investigating as many companies as possible to find suitable investments.

So, what might Lynch make of Thai Beverage (SGX: Y92)?

Ideally Peter Lynch likes to see valuations that are reasonable when compared to historical averages. In the case of Thai Beverage, investors are paying around S$21 for every dollar of profit the company makes. That is at the higher end of the historical price-to-earnings valuation for the company.

That in itself is not a problem as far as Lynch is concerned. A high valuation can be justified if the company is growing its profits quickly. However, Thai Beverage’s operating profit has only been growing at an annual rate of about 4% since 2003. That implies a Price-to-Earnings-to-Growth (PEG) ratio of around five, which is considerably higher than the ratio of one, which Lynch would consider acceptable.

Peter Lynch is not a huge fan of debt. In other words, he likes to see low levels of debt compared to shareholder equity. At the last count, Thai Beverage had around S$2.3b of total debt compared to total shareholder equity of S$3.8b.

The debt to equity is not especially high. However, Lynch is likely to frown on Thai Beverage’s Net Debt position of S$2.2b. Lynch likes to see Net Cash on the balance sheet.

Lynch could warm to Thai Beverage’s consistent dividends, though. The payout of S$0.02 on the shares that cost S$0.74 suggests a yield of 2.7%, which is acceptable. What’s more, a Retention Ratio of 50% coupled with a Return on Equity of 22% could suggest that Thai Beverage has plenty left in the tank to raise its dividends, if it wants to.

Another check that Lynch is likely to make is inventory levels. Over the last five years, Thai Beverage has succeeded in turning over its inventory around three times a year. That could please Lynch.

On balance, Thai Beverage ticks some of the boxes that could make it a Peter Lynch stock. However, it probably doesn’t quite tick enough of them to make it an astounding growth stock that could interest him.

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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.