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BreadTalk Was Up By 50% In The Last 12 Months. Is It Expensive Now?

BreadTalk Group Limited (SGX: 5DA) is an Food & Beverage company that has three main business segments, namely, Bakery, Restaurant, and Food Atrium.

The company’s market capitalisation has risen 50% in the last 12 months. We will try to answer a simple question about BreadTalk – is the company’s current valuation cheap, fair or expensive?

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

But we will try by comparing BreadTalk’s current valuation with the market using three perspectives, namely price-to-book, price-to-earnings and dividend yield.

Here, the proxy that we will use as the market’s valuation is the SPDR Straits Times Index ETF.

Price-to-book ratio (P/B)

*Source: Google Finance at price $1.60

As we can see from the chart above, the price-to-book ratio for BreadTalk is about 2.7 times more than the Straits Times Index ETF.

As such, assuming everything else being equal and that price to book ratio is used as the sole criteria for valuation, BreadTalk is trading at a 170% premium to the market average.

Price-to-earnings ratio (P/E ratio)

*Source: Google Finance at price $1.60

From the chart above, we can see that BreadTalk’s P/E ratio is trading at about 189% of the market average.

This suggests that if the P/E ratio is used as a sole metric for valuation, BreadTalk is trading at an 89% premium to the market average.

  Dividend yield

*Source: Google Finance at price $1.60

Lastly, we will look at the dividend yield. Here, we can see that BreadTalk’s dividend yield of 1.9% is lower than the market yield of 3.1%.

As we all know that the dividend yield is an inverse of valuation, thus, the lower the yield, the higher the valuation.

On that basis, we can see that BreadTalk is trading at a valuation that is at a 63% premium to the average market.

Conclusion:                  

In summary, based on what we have seen, we could argue that BreadTalk is currently priced at a higher valuation as compared to the overall market.

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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.