At What Price Would Benjamin Graham Buy Osim International?

Osim International (SGX: O23) is perhaps best known for its line of massage chairs under its flagship brand OSIM. The company, which promotes a healthy lifestyle and well-being, also does business through Richlife/GNC and TWG Tea.

One measure of a shares value is its earnings yield – the earnings expressed as a percentage of its share price. This essentially tells an investor that, if they owned the entire company and took all earnings as dividends what their yield would be. Graham traditionally sought a company’s earnings yield to stand at a value of at least twice the risk-free rate of return.

In Osim’s case, its earnings yield of 6.6% is around treble the risk-free return. The company could thus see its share price rise by over 65% from S$1.99 to around S$3.20 and still have the attention of a value investor.

A look at the company’s dividend yield is likely to add to the enthusiasm. The company’s dividend of S$0.06 a share might only translate into a dividend yield of only 2.2%. However, this still leaves room for a 6% increase in share price to S$2.11 a share before it would equate to the yield of the 10-Year US Treasury

More impressive, though, is the way the company’s dividend has grown in recent years. From 2009 the dividend grew from just S$0.01 a share to S$0.06 in 2013. This is thanks largely due to continued growth in the company’s bottom-line profits. Investors will be hoping that this is a trend that could continue.

Whilst the earnings and dividend yield might have value hunters fairly relaxed about the company, a look at the price-to-book could have them reaching for a massager to gain some relief.

The company has a healthy balance sheet – it has net assets totaling over half a billion dollars and a current ratio upwards of 3.5. However, at the current market capitalisation of S$1.5b, Osim is valued at 3-1/2 times its book value. The share price would, theoretically, need to fall 70% to S$0.57 to provide an adequate margin of safety.

From examining these 3 measures, it would seem a value investor could put a price of between S$0.57 and S$3.20 per share on Osim. Where exactly your estimate lies would depend on what measures you consider to be most important and the level of risk you are willing to assume.

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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 Adam Kuo doesn’t own shares in any companies mentioned.