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Berkshire Hathaway Invests In US Airlines – Should Investors Consider Singapore Airline Now?

Singapore Airlines Ltd (SIA: C6L) is Singapore’s national airline. Many of us are familiar with it.

Recently, it was reported that Berkshire Hathaway has invested in American Airlines, Delta Airlines and United Continental.

As such, investors may want to know whether we should also consider investing in our flag carrier too.

Unfortunately, there is no easy answer to this since investors should 1) judge the future business prospects of Singapore Airlines and 2) buy only if the valuation is right.

Both tasks are neither easy nor straight forward.

Here, however, we will try to get an idea by comparing Singapore Airlines’ current price-to-book, price-to-earnings and dividend yields over the last five years.

Price to book ratio (P/B)

siaptb

Source from Morningstar.com

As we can see from the chart, the price-to-book ratio for SIA has consistently been between 0.9 and 1.0 in the last five years.

At today’s price of $9.64, the price-to-book ratio is at the lower end of that range.

Put simply, SIA is currently trading at the lower end of its valuation in relation to its five years historical metrics. 

Price to earnings ratio (P/E ratio)

siape

Source from Morningstar.com

From the chart above, we can see that SIA’s P/E ratios have been quite volatile, fluctuating between a low of 17.5 times to a high of 66.7 times earnings in the last five years.

This indicates that the airline has a relatively volatile earning profile, especially given that it’s price to book ratio has consistently ranged between 0.9 to 1.0 times.

The TTM P/E ratio of 14.2 indicates that SIA is trading at its “lowest” valuation in the past five years, if the P/E ratio is used as a metric. 

Dividend yield

siady

Source from Reuters

Lastly, we will look the dividend yield. Here, we can see that current dividend yield of 4.57% is almost twice as high as the five-year average yield.

As we all know that dividend yield is an inverse of valuation. So, the higher the yield, the lower the valuation.

As such, we can see that SIA’s current valuation, on the basis of dividend yield, is very much lower than the five-year average.

In summary, we can argue that SIA is currently trading at a relatively inexpensive valuation as compared to its five-year history.

Nevertheless, the low valuation may not be unwarranted, especially since the company recently announced a weaker quarterly performance, which can be found here.

As such, investors are reminded that valuation is not the only criteria to focus on. In fact, it will be equally, if not more, important that investors have a good grasp of the future prospects of SIA before investing their capital.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.