MENU

Would Peter Lynch Buy Singapore Technologies Engineering?

Peter Lynch likes fast-rowing companies. He also likes companies with plenty of cash and avoids those with too much debt.

So what would he make of Singapore defence contractor Singapore Technologies Engineering (SGX: S63)?

ST Engineering is a fast-growing company – or at least it has been. In 1997, revenues were around S$1.5b. More recently, it has been around S$6.5b, which equates to an annual growth rate just shy of 8.5%.

Profits have more or less followed suit. Some 18 years ago, Net Income was S$109m. And in the last twelve months, it was S$530m, which also equates to an annual growth rate of about 9%.

That said, earnings growth in the last five years has been flat, which coupled with a historic Price-to-Earnings ratio of 20, is unlikely to sway Lynch. He likes to see a Price-to-Earnings-to-Growth (PEG) ratio closer to one.

In its favour are low levels of debt compared to shareholder equity. Currently, ST Engineering has S$1b of debt and S$2.3b of shareholder equity. Additionally, with around S$1.6b in cash and short-term investments, it effectively has Net Cash on its books.

ST Engineering also pays a dividend of S$0.08, which equates to a yield of 4.3%. What’s more, the payout ratio of 46% suggests that it has plenty left in the armoury.

Another thing in its favour is relatively low inventory levels. Currently, it stands at S$1.8b. It holds the inventory for roughly 128 days, which for a maker of defence equipment probably isn’t that long.

There is a lot to like about Singapore Technologies Engineering. But the PEG ratio might be a bit too rich for Peter Lynch’s liking.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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.