These 2 Shares Are Way Below Their 52-Week Highs – But That doesn’t Mean They’re Bargains

Sifting through the list of shares with prices that are way-below their respective 52-week highs can be a legitimate way to find bargains.

And for investors who do that, SIA Engineering Company Limited (SGX: S59) and Cosco Corporation (Singapore) Limited (SGX: F83) may seem like good opportunities at the moment given the gulf between their current share prices and their 52-week highs.

SIA Engineering and Cosco's current share price

Source: Google Finance

But, there may be a good reason for investors to remain cautious with them despite their seemingly cheap-looking share price: Their valuations.

SIA Engineering’s current price gives it a price-to-earnings (PE) ratio of 23 (based on its trailing earnings). Meanwhile, Cosco’s trailing PE ratio is at a nosebleed 62. Without context, there’s not much information which can be gleaned from these two figures.

So, here’s the context: SIA Engineering and Cosco’s average PE ratios over the past 10 years since the start of 2005 are 16.7 and 25 respectively. These average PE ratios are a lot lower than the duo’s current valuation. You can see these in the two charts immediately below:

SIA Engineering's price-to-earnings (PE) ratio from January 2005 to 20 April 2015 Cosco's price-to-earnings (PE) ratio from January 2005 to 20 April 2015

Source: S&P Capital IQ

It’s also interesting to point out that the last time Cosco’s PE ratio exceeded 70, it was in 2007 and the shipping outfit was trading at more than $7.50 per share – investors who had bought into the shipping outfit back then at that elevated valuation point would have suffered some serious pain.

To exacerbate the problem of a high PE ratio, both companies have also seen their earnings per share (EPS) shrink over the past few quarters – this trend is apparent in the chart below.

SIA Engineering and Cosco's earnings per share (EPS) history

Source: S&P Capital IQ

A Fool’s take

None of the above is meant to say that SIA Engineering and Cosco would make for lousy long-term investments going forward. In the case of SIA Engineering, it has displayed signs of possessing a quality business by virtue of how it has been able to generate very strong returns on equity over the decade ended 2013 despite carrying zero or negligible amount of borrowings on its balance sheet.

But, given what we’ve seen with both companies’ valuation history and recent trend of falling earnings, bargain hunters might want to tread carefully with the duo.

For more investing analyses and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot 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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.