After Falling By 17.5% In A Week, Would Triyards Holdings Ltd Interest Warren Buffett’s Investing Mentor?

On Sunday, offshore support services provider Ezra Holdings Limited (SGX: 5DN) filed for bankruptcy along with a few other related entities. This move has caused panic amongst investors for some Singapore-listed companies that are linked to Ezra.

One such company is Triyards Holdings Ltd (SGX: RC5), a vessel builder for the oil & gas industry and a subsidiary of Ezra’s. Following news of Ezra’s bankruptcy filing, Triyards halted the trading of its stock from Monday to Tuesday. But once the trading halt was lifted, the company’s shares promptly declined. At the current price of S$0.235, Triyards’ shares are 17.5% lower compared to last Friday.

This sharp decline in Triyards’ price could have attracted the attention of bargain hunters. But, not every stock that has fallen hard would be a legitimate bargain. To gain some insight on whether a stock would be a great investing opportunity, we can turn to the late Benjamin Graham.

Graham may not be very well-known outside of the finance community, but within, he is a widely-known and highly respected figure. He was the investing mentor of the billionaire investor Warren Buffett, and was also the author of two classic investment books, namely, Security Analysis and The Intelligent Investor.

During his investing career, Graham developed a 10-point investing checklist which can help us look at stocks through his eyes. With that, let’s run Triyards through the checklist:

1. An earnings-to-price yield that’s at least twice the triple-A bond rate

An earnings-to-price yield is the inverse of the P/E ratio. At Triyards’ current stock price, it has an earnings-to-price yield of 25.8% thanks to its trailing earnings of S$0.0606 per share.

Data from the Monetary Authority of Singapore show that the 10-year Singapore government bond has a yield of ‘only’ 2.24% right now. I trust it’s obvious to see that Triyards’ earnings-to-price yield is way more than twice the figure of 2.24%. (Singapore currently has a triple-A credit rating from a number of credit rating agencies, so the aforementioned 10-year Singapore government bond yield can be seen as the triple-A bond rate.)

Verdict: Yes

2. A P/E ratio that is 40% or less than the highest P/E ratio the stock has had over the past five years

The highest P/E ratio Triyards has had in the past five years is 9.0. The company is not able to clear the hurdle here given that 40% of the max P/E ratio of 9.0 is 3.6, which is a tad lower than the company’s current P/E ratio of 3.9.

Verdict:; No

3. A dividend yield of at least two-thirds the triple-A bond yield

Triyards did not pay a dividend in its last completed fiscal year (the 12 months ended 31 August 2016) and so, its yield is zero right now.

Verdict: No

4. A stock price that’s below two-thirds of the stock’s tangible book value per share

As of 30 November 2016 (the company’s latest financial reporting date), Triyards has a tangible book value per share of S$0.997. The company’s current stock price of S$0.235 is merely 24% of S$0.997.

Verdict: Yes

5. A stock price below two-thirds of net current asset value (where net current asset value equals total current assets minus total liabilities)

Triyards clears the bar here too. Its current stock price of S$0.235 is 64% of its net current asset value per share of S$0.367.

Verdict: Yes

6. Total debt less than tangible book value

Triyards recorded total debt of S$236.3 million and a tangible book value of S$323.6 million as of 30 November 2016. It’s obvious to see that the company meets this criterion.

Verdict: Yes

7. Current ratio (total current assets divided by total current liabilities) greater than two

With total current assets of S$523.6 million and total current liabilities of S$390.2 million at the moment, Triyards has a current ratio of just 1.34.

Verdict: No

8. Total debt less than four-thirds of the net current asset value

We know what the dollar amounts of the company’s net current asset value and total debt are. Some simple calculations will reveal that Triyards has failed to cross the hurdle here.

Verdict: No

9. Compound annual earnings growth rate of 7% over past 10 years

Triyards was listed only in late 2012, so it does not have a long track record to study. But, it’s worth noting that its net income from its FY2009 (fiscal year ended 31 August 2009) to FY2016 has increased by just 5.8% per year.

Verdict: No

10. Stability of earnings: No more than two years of declining earnings of 5% or more over the past 10 years

In the period from FY2009 to FY2016, Triyards saw its net income decline by 69% in 2011, 28.8% in FY2013, 15.0% in FY2014, and 34.6% in FY2016.

Verdict: No

In a roundup of the scores, Triyards has failed to meet six out of Graham’s 10 criteria. With such a result, it’s hard to see how Graham would develop any interest in Triyards as an investment opportunity.

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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.