Would Peter Lynch Buy CapitaLand Limited?

Peter Lynch is very much a bottom-up investor. But what would his analysis tell him about one of Singapore’s largest property developers, CapitaLand (SGX: C31)?

One of Lynch’s favourite ratios is Price-to-Earnings. Ideally, a PE ratio that is low compared to the historical average could imply that a stock is undervalued. In the case of CapitaLand, its current valuation of 14 is only slightly lower than the historical valuation of around 16 times earnings.

The PEG ratio is something that Lynch would consider an important pointer. It compares the current valuation with the rate that earnings have been growing. A ratio of less than one could imply that a stock might be undervalued.

Unfortunately, CapitaLand’s PEG ratio doesn’t shed much light on the company. Over the last five years, earnings have been largely flat.

Amongst some of Lynch’s other metrics is the debt to equity ratio. This should be as low as possible. Or as Lynch once said: “Companies that have no debt can’t go bankrupt.

CapitaLand does have debt. At the last count, it had S$15.5 billion of loans compared to S$23.9 billion of shareholder equity. That equates to a debt-to-equity ratio of 65%, which could be tad high for Lynch.

As a result of CapitaLand’s high levels of debt, the company has net debt rather than net cash. That is unlikely to impress Lynch.

CapitaLand pays dividends. What’s more the dividends have risen gradually over time, which should please Lynch. The payout ratio is not especially high, which could suggest that the dividends are sustainable.

CapitaLand has a few attributes that Lynch would find attractive, But probably not enough to get the growth investor reaching for his chequebook and pen. Interestingly, it might appeal to Warren Buffett, though.

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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.