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The Investing Pros and Cons Associated With Yoma Strategic Holdings Ltd

Credit: Daniel Julie

Yoma Strategic Holdings Ltd (SGX: Z59) is essentially a conglomerate that is focused on Myanmar. Within the country, the company has business interests in real estate development, agriculture, construction, automobiles, and more.

The company has also been a very strong performer in our local market over the past five years with its stock price up by 342%. Yoma Strategic’s stock price gains prompted me to take a deeper look at its business to come up with a list of investing pros and cons.

The positives

One of the positives I see that is associated with the company is its history of strong growth. You can see this in the table below:

yoma-strategic-business-table
Source: S&P Global Market Intelligence

The company has achieved strong growth in its revenue, net income, and net income margin over the past few years. The snag here is that its single-digit return on equity is below-average when compared to the market.

Another positive with Yoma Strategic is the fact that its businesses are all centered on Myanmar. The country has a population of more than 54 million and has grown its economy by over 7% annually from 2012 to 2015. Its economy is projected to grow by over 8% in 2016 and 2017. Myanmar has also undergone political reforms in recent years, thus making it friendlier toward foreign investors.

But, it can be difficult to ride on any potential growth in Myanmar’s economy for most stock market investors given that the country does not have any mature stock market to speak of. Yoma Strategic is thus a convenient proxy for Singaporean investors who want exposure to Myanmar’s economy.

That being said, it’s worth noting that a wide gulf can exist between a positive macro-economic trend (such as a country’s economic growth) and positive stock price gains for a company.

The negatives

On the investing cons with Yoma Strategic, one is the company’s valuation. Even the greatest of companies can be a disastrous investment if we overpay for it.

At its current stock price, Yoma Strategic has a price-to-book and price-to-earnings ratio of 1.5 and 22.5, respectively. These are higher than the SPDR STI ETF’s (SGX: ES3) PB and PE ratios of 1.2 and 12.2. The SPDR STI ETF is an exchange-traded fund that tracks Singapore’s market barometer, the Straits Times Index (SGX: ^STI).

For every dollar of profit Yoma Strategic’s making, investors are currently paying $22.50. In the case of the SPDR STI ETF, investors are paying only $12.20 per dollar of profit.

To be fair, investors may have high expectations for Yoma Strategic given its strong historical growth that we saw above. But the question is, can the company sustain its growth?

A Foolish conclusion

To sum up what we’ve seen about Yoma Strategic thus far, the company has managed to grow its business strongly over the past few years, but its valuation is at a huge premium when compared to the market.

It is of utmost importance for investors to dig deep into a stock and weigh its pros and cons before taking any action. What I’ve shown above is by no means a complete list, but it should still be useful as a starting point for further research.

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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.