S$260 Million Has Been Wiped Out From M1 Ltd’s Market Capitalisation In The Last 12 Months: Is The Stock Cheap Now?

M1 Ltd  (SGX: B2F)  is currently Singapore’s smallest operational telco. It sits in third place behind  Starhub Ltd  (SGX: CC3) and leader Singapore Telecommunications Limited  (SGX: Z74).

Over the last 12 months, the company’s stock price has declined by 11% to S$2.18, in the process, wiping out S$260 million in market capitalisation.

Then in March, the media reported that M1’s major shareholders – Keppel Corporation Limited (SGX: BN4), Singapore Press Holdings Limited (SGX: T39), and Axiata Group Berhad (KLSE:6888.KL) – had embarked on a strategic review of their stakes in the telco. This, along with M1’s falling stock price, may cause investors to wonder if M1 is cheap or expensive at the moment.

There’s no easy answer since there are many ways to look at a company’s valuation. But, we can still get some insight by comparing M1’s current valuations with the market’s.

The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield. I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

Here’s a chart showing the PB ratios of M1 and the SPDR STI ETF:

M1 and SPDR STI ETF PB ratio
Source: S&P Global Market Intelligence and SPDR STI ETF website

M1 currently has a PB ratio of 4.7, which is nearly four times higher than the SPDR STI ETF’s PB ratio of 1.2. So, M1 is clearly more expensive than the market, based on the PB ratio.

The next chart shows the PE ratios of M1 and the SPDR STI ETF:

M1 and SPDR STI ETF PE ratio
Source: S&P Global Market Intelligence and SPDR STI ETF

Unlike the PB ratio, the PE ratios of M1 and the SPDR STI ETF are actually pretty similar (14.5 vs. 13.1). From this, we can see that M1 is more or less valued similarly as the market with respect to the PE ratio.

Lastly, the chart below shows the dividend yields of M1 and the SPDR STI ETF:

M1 and SPDR STI ETF dividend yield
Source: S&P Global Market Intelligence and SPDR STI ETF

This is where M1 outshines the market. At its current stock price, the telco has a trailing dividend yield of 6.0%, which is twice the SPDR STI ETF’s yield of 3.0%. (The higher the yield is, the lower a stock’s valued.)

To sum up all that we’ve seen here, M1 can be said to be priced at a slight discount to the market given its high dividend yield and PE ratio that’s similar to the SPDR STI ETF.

One thing that investors should note here is that M1 is likely to face continued pressure in sustaining its current profits given the introduction of the new fourth telco in Singapore, the Australia-based TPG Telecom. If M1 can’t hold onto its profits, then its dividend may not be sustainable as well, resulting in its current high dividend yield being a moot point.

It’s also worth noting that none of what we’ve seen above should be taken as the definitive word on whether M1 will be a poor or good investment going forward. Valuation metrics are just one of the many important aspects about a company that investors should study before any investing decision can be reached.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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.