Is Thai Beverage Public Company Limited a Risky Stock?

In a previous article I wrote, I shared three questions investors can ask to determine how risky a stock is. For convenience, the questions are repeated below:

1. Is there any form of concentration in the company’s business model?

2. Is the company’s valuation high?

3. Is the company’s balance sheet weak?

But, please keep in mind the fact that the trio of questions are not the only important things investors should ask to assess the riskiness of a stock. That being said, my questions can still lead to valuable insight on the crucial subject of risk.

With the three questions in hand, I thought it’d be interesting to look at how risky Thai Beverage Public Company Limited (SGX: Y92) may be at the moment. Given that the company is one of the largest in Singapore’s stock market (it is one of the Straits Times Index’s (SGX: ^STI) 30 constituents) and that its stock price has surged by 27% over the past year, it could be a beacon for investor’s attention.

The business

Thai Beverage is a food & beverage company. It distills spirits and brews beer, and also produces a wide variety of non-alcoholic beverages. In addition, it runs restaurants and distributes food products (such as sandwiches and frozen foods).

Its spirits- and beer-related businesses are by far the most important contributors to its total revenue and profit. In its last completed fiscal year, Thai Beverage’s Spirits and Beer segments accounted for 89% and 17% of its overall profit (the numbers add up to over 100% because the other segments were loss-making).

The questions on risk

With regard to the first question on risk, Thai Beverage did not appear to have any customer that accounts for a significant chunk of its total revenue in its fiscal year ended 30 September 2016 (the year had only nine months to facilitate the change of the company’s fiscal year end from December to September).

But, the company does have geographical concentration risk. In FY2016, Thai Beverage sourced 96% of its revenue from Thailand, a country that has suffered from episodes of political instability in recent years.

Coming to the second question, Thai Beverage currently has a price-to-earnings (PE) ratio of 21.7. That ratio is not only near a five-year high (see chart below), but it is also significantly higher than the market’s PE of around 13.

Moreover, it’s worth noting that in the 12 months ended 31 December 2016, Thai Beverage managed to grow its earnings per share by merely 1.9%, according to data from S&P Global Market Intelligence.

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

Lastly, on the question regarding the company’s balance sheet strength, Thai Beverage has a significant net debt position of THB 35.3 billion as of 31 December 2016. But, its current ratio (current assets over current liabilities) and net debt to equity ratio are both healthy at 1.33 and 0.27, respectively.

A Foolish conclusion

To sum it up, Thai Beverage looks to me to be a stock that carries geographic concentration- and valuation-related risks. Do note that this study of Thai Beverage’s fundamentals should not be taken as the final word on whether the company would be a good or bad investment going forward. See the information here simply as a good 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 writer Chong Ser Jing doesn't own shares in any company mentioned.