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ARA Asset Management Limited’s Valuation: Then vs. Now

On Thursday, ARA Asset Management Limited (SGX: D1R) received a query in the late afternoon from bourse operator Singapore Exchange Limited (SGX: S68) regarding the trading activity on its shares.

Around 45 minutes later at 4:31 pm, ARA Asset Management requested for an immediate trading halt on its shares. By the time the company’s request came through, its share price had already increased by 6% from Wednesday’s close. As of the time of writing (4 November 1:00 pm), the trading halt is still in place.

I thought it’d be interesting right now to have a look at ARA Asset Management’s valuations in relation to history. I’m going to focus on two ratios here, namely, the price-to-earnings (PE) ratio and the price-to-book (PB) ratio.

But before I do so, I want to have a quick word on the company’s business.

The business of ARA Asset Management

ARA Asset Management is a company that manages private real estate funds and public-listed as well as private real estate investment trusts. These trusts and funds are invested across many different property sectors in the Asia Pacific region, such as office, retail, logistics/industrial, hospitality and residential.

In Singapore’s stock market, the REITs managed by ARA Asset Management are Fortune Real Estate Investment Trust (SGX: F25U), Suntec Real Estate Investment Trust (SGX: T82U) and Cache Logistics Trust (SGX: K2LU).

With that, let’s return to ARA Asset Management’s valuations.

The valuations

At ARA Asset Management’s current price of S$1.495, it has a trailing PE ratio of 16.2. The following chart shows how the company’s PE ratio has changed over the past five years. And as you can see, its PE ratio right now is near the middle of where it has been for the period under study:

aras-pe-ratio-over-past-five-years
Source: S&P Global Market Intelligence

But interestingly, ARA Asset Management’s PB ratio tells a different story. Here’s a chart of the valuation ratio over the last five years:

aras-pb-ratio-over-past-five-years
Source: S&P Global Market Intelligence

You can observe that the PB ratio for the company has been on a downward trend, falling from around 5 to 2.7 today. In fact, ARA Asset Management’s PB ratio is near a five-year low right now.

A Foolish conclusion   

In sum, ARA Asset Management’s PE and PB ratios are nowhere near five-year highs. The former is comfortably in the middle of the trading range for that block of time while the latter is actually near a five-year low.

But when it comes to valuation ratios, it is important to note that low PE and PB ratios in and of themselves do not make a company a good investment. Companies that see their businesses crumble can still be lousy investments even if bought at low valuations.

Valuation ratios are only one of the many aspects about a company that investors should consider before making an investment decision.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.