Singapore?s stock market benchmark, the Straits Times Index (SGX: ^STI), has not had a good run over the past five years. That?s evident when we look at how the index has fallen by 10% or so from 3,200 points in November 2010 to its current level of 2,900.
But, over the same period of time, there were some blue chips ? current components of the Straits Times Index – which have seen their share prices more than double. Let?s have a look at two of them to determine if they can continue to outperform the market average.
The best performer
Alcoholic beverages maker Thai…
Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), has not had a good run over the past five years. That’s evident when we look at how the index has fallen by 10% or so from 3,200 points in November 2010 to its current level of 2,900.
But, over the same period of time, there were some blue chips – current components of the Straits Times Index – which have seen their share prices more than double. Let’s have a look at two of them to determine if they can continue to outperform the market average.
The best performer
Alcoholic beverages maker Thai Beverage Public Company Limited (SGX: Y92) is the best performing blue chip stock over the past five years. After adjusting for reinvested dividends, Thai Beverage has returned more than 190% since November 2010; that is a compound annual return of 24%.
Thai Beverage’s strong return is backed by its business growth. From 2010 to 2014, the company has grown its revenue at a compound annual rate of 7.7%. Meanwhile, its net income had expanded at a much faster pace of 19.7% annually.
Thai Beverage’s management team is planning to grow the company’s international business and they expect 50% of the firm’s revenue to be derived from outside of Thailand by 2020. At the moment, more than 95% of Thai Beverage’s business is still generated within Thailand. Given the management team’s international ambition, geographic expansion might be an area of growth for Thai Beverage.
The next best thing
Another blue chip stock with an impressive return over the past five years is ComfortDelgro Corporation Ltd (SGX: C52). The land transport conglomerate has generated a total return (where gains from reinvested dividends are included) of more than 130%. That works out to a very respectable 18% compound annual return.
But, from 2010 to 2014, the company’s revenue and net profit had climbed at compound annual rates of only 6% and 5.5% respectively.
So, unlike Thai Beverage, most of the return enjoyed by ComfortDelGro’s shareholders was due to an expansion of the company’s valuation. ComfortDelGro’s price-to-earnings ratio had stepped up from an average of 14 in 2010 to 22 currently. The higher PE ratio ratio would meant that the market’s expectations on ComfortDelGro have increased significantly over the past five years. The company would have to prove to the market that it can continue to grow in order to sustain its climbing earnings multiple.
With the Straits Times Index falling by 10% over the past five years, both Thai Beverage and ComfortDelGro have outperformed the market considerably over the same period.
But, we have seen that the bulk of the return for ComfortDelGro was due to growing expectations on the company. That is a risk for investors to note as ComfortDelGro’s share price may fall if the company is not able to produce the requisite growth in the future.
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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 Stanley Lim doesn't own shares in any company mentioned.