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SATS Ltd Has Beaten The Market In The Last 12 Months. Is It Expensive Now?

SATS Ltd (SGX: S58) is a company that provides food and gateway services.

The Food Solutions covers airline catering, food distribution, industrial catering. Gateway Solutions is involved in the ground-handling services of passengers, flights and cargo.

In the last 12 months, SATS has delivered a market-beating return of 23%.

In this article, we will try to answer a simple question about SATS, namely, whether the company’s current valuation cheap, fair or expensive.

Unfortunately, there is no easy answer, since there are many ways to look at valuation.

Still, we will try to answer the above question by comparing SATS’ current valuation to the market in terms of three ratios, namely, price-to-book, price-to-earnings and dividend yield.

Here, the proxy that we will use is the SPDR Straits Times Index ETF (SGX: ES3). The shares for SATS is $5.08.

Price to book ratio (P/B)

The price-to-book ratio for SATS is nearly three times that of the Straits Times Index ETF.

As such, assuming all else being equal and that price to book ratio is used as the sole criterion for valuation, SATS is around 195% more expensive than the market average.

Price to earnings ratio (P/E ratio)

SATS’ P/E ratio is trading at about 167% of that of the market average.

This suggests that if P/E ratio is used as a sole metric for valuation, SATS is trading at a 67% premium to the market average. 

Dividend yield

Lastly, we will look at the dividend yield. Here, we can see that SATS’ dividend yield of 3.4% is higher than that of the market of 2.9%.

The dividend yield is an inverse valuation. So the higher the yield, the lower is the valuation.

On that basis, we can see that SATS is trading at a 14% discount to that the market.

Conclusion:              

In summary, based on what we have seen above, we may argue that SATS is currently priced at a premium to the market average.

The high valuation, however, is partially offset by a yield that is higher than the market average.

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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 has a buy recommendation for SATs. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.