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Are StarHub Ltd’s Current Valuations High Or Low Compared To History?

StarHub Ltd (SGX: CC3) is currently Singapore’s second largest operational telco. Over the last 12 months, the company’s stock price has fallen by nearly 20%.

This decline got me interested in comparing the company’s current valuations with history. The valuation metrics I want to focus on here are the price-to-sales (PS) ratio, price-to-earnings (PE) ratio, and dividend yield.

Here’s a chart illustrating StarHub’s PS ratio over the past five years:

StarHub's PS over past 5 years
Source: S&P Global Market Intelligence

For the timeframe under observation, StarHub’s PS ratio has ranged between 2.0 and 3.4. Right now, the telco has a PS ratio of 2.0, which is clearly near a five-year low.

Next, let’s turn to a chart of StarHub’s PE ratio over the past five years:

StarHub's PE ratio over past 5 years
Source: S&P Global Market Intelligence

Again, it’s clear that StarHub’s PE ratio, at 14.1 right now, is near a five-year low; in the five years ended 23 February 2017, StarHub’s PE ratio has come in between 13.0 and 22.6.

The next chart illustrates StarHub’s share price over the past five years:

StarHub share price over last five years
Source StarHub’s website

StarHub has been paying an annual dividend of S$0.20 per share from 2010 to 2016. So, we can observe that StarHub’s trailing dividend yield has fluctuated between 4.4% (a share price of S$4.50 and a trailing dividend of S$0.20 per share) and 7.3% (a share price of S$2.73 and a trailing dividend of S$0.20 per share) for the timeframe we’re studying.

At its current stock price of S$2.79, StarHub has a trailing yield of 7.1%, which is near a five-year high. (The higher the dividend yield, the lower the valuation.) But, it’s worth noting that StarHub has announced that it would cut its dividend for 2017 to S$0.16 per share. At its current stock price, this is an expected yield of 5.7%.

So on the whole, StarHub’s current valuations compare very favourably with history. But, it’s worth keeping in mind that none of the above is meant to be the final word on whether StarHub will be a good or bad investment going forward.

At the end of the day, valuation ratios are only one of many aspects about a company that investors should consider before making an investment decision. Other qualitative factors such as a company’s future growth potential and quality of management must also be taken into account.

Right now, Singapore’s telco industry is undergoing significant changes due to the addition of a fourth player, Australia’s TPG Telecom. It is vital that investors pay attention to how well StarHub is coping with this change.

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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.