These Dirt-Cheap Shares May Not Be Great Bargains After All

Over the past 10 years since the start of 2005, 9 March 2009 can be considered to be one of the best (if not the best) time to buy stocks in Singapore. That’s because the date was when Singapore’s market barometer, the Straits Times Index (SGX: ^STI), bottomed-out during the Great Financial Crisis of 2008-09.

From that base, the index went on to more than double from 1,457 points to nearly 3,400 today. Investors in the index, through exchange-traded funds like the SPDR STI ETF (SGX: ES3), would have been able to log similar returns of around 130% even without counting the effects of dividends.

With such an experience thus far for the Straits Times Index, suffice it to say that it would be a great time for buyers of shares to be able to experience those bargains again.

Although no one knows when the next big crash is coming and what its effects may be, there are actually seemingly dirt-cheap shares that are currently carrying lower valuations today as compared with back in 9 March 2009 – in other words, investors have the chance to relive crisis-level bargains (and more) all over again.

Here are three of those shares, namely, Cityneon Holdings Limited (SGX: 5HJ), Pacfic Andes Resources Development Ltd (SGX: P11), and Raffles Education Corp Ltd (SGX: NR7). You can check out the extent of their cheapness in the table immediately below:

Valuation table for Cityneon, Pacific Andes, and Raffles Education

Source: S&P Capital IQ

For some perspective, the SPDR STI ETF is currently valued at around 14 times earnings, meaning to say the aforementioned trio of shares are at least half as cheap as the broader market. With such low valuations, does this necessarily make Cityneon, Pacific Andes, and Raffles Education great bargains?

Not yet.

As the table below shows, the trio have seen their business performances decline (some substantially so) since 9 March 2009, leading to drastic falls in their share prices even though some of them were already very cheap back then. Even a huge market rally, with the Straits Times Index gaining around 130% from its crisis-low, couldn’t save them; as it turns out, boats with holes can’t be lifted even with a rising tide.

Business and share price performance for Cityneon, Pacific Andes, and Raffles Education

Source: S&P Capital IQ

None of the above is meant to say that Cityneon, Pacific Andes, and Raffles Education would necessarily make for a poor investment going forward. Instead, the key takeaway here is that cheap shares can still make for poor investments if their underlying business performances would continue to worsen.

So although the trio might look cheap on the surface toady, investors would still have to dig deeper into their businesses and assess if better days are ahead. If their corporate performances would deteriorate from here, they might just not be great bargains after all.

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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 company mentioned.