Would Peter Lynch Buy ComfortDelGro?

It is hard to say whether Peter Lynch would be frustrated or delighted at the difficulty of hailing a cab in Singapore.

On the one hand, it can be nigh on impossible to get a taxi on a wet Monday morning. But on the other hand, it could be a sign that Singapore’s taxis are both affordable and in demand.

For an investor such as Lynch, high demand for the taxis operated by ComfortDelGro (SGX: C52) is likely to put the company in his good books. Thing is Peter Lynch likes to look at the story behind the company. And the story appears encouraging.

Peter Lynch also wants to see a company’s valuation below its long-term average. That does not appear to be case with ComfortDelGro. It is currently valued at around 24 times profits, which is above its historic average valuation of 18 times earnings.

That said, the transport company’s earnings have been growing at about 7%. That puts ComfortDelGro’s Price-to-Earnings-to-Growth ratio at more than three, though. Lynch would probably consider that to be on the high side.

In its favour, ComfortDelGro is not highly leveraged. It has debts of around S$766m. But it also has equity to the tune of S$2.9b. Meanwhile, ComfortDelGro has Total Liabilities of S$2.4b and Total Assets of S$5.3b. That equates to a Leverage Ratio of 1.8, which is in line with the 30 companies that make up the Straits Times Index (SGX: ^STI).

As a further sign of the company’s financial strength, it has Net Cash of S$152m, rather than debt, on its balance sheet.

ComfortDelGro also pays dividends. Those payouts have been increasing steadily over time. Currently, it pays S$0.08 per share, which represents about 52% of its earnings. A retention ratio of 48% coupled with a Return on Equity of 10% would imply a growth rate of about 4.8%.

ComfortDelGro has many positive attributes. However, it is unlikely to capture the imagination of a growth investor such as Peter Lynch. It might appeal to an income investor, through.

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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.