Land transport giant ComfortDelGro Corporation Ltd (SGX: C52) has seen its stock price fall by 14% over the past year to S$2.08. In the same period, Singapore?s stock market barometer, the Straits Times Index (SGX: ^STI), has gained 20% in price.
This big gap between ComfortDelGro and the Straits Times Index?s returns may cause investors to wonder if the former is a bargain right now. Unfortunately, there is no easy answer. But, we may be able to find some clues from an investing checklist that the legendary investor Peter Lynch shared in his book One Up On Wall Street.
Land transport giant ComfortDelGro Corporation Ltd (SGX: C52) has seen its stock price fall by 14% over the past year to S$2.08. In the same period, Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI), has gained 20% in price.
This big gap between ComfortDelGro and the Straits Times Index’s returns may cause investors to wonder if the former is a bargain right now. Unfortunately, there is no easy answer. But, we may be able to find some clues from an investing checklist that the legendary investor Peter Lynch shared in his book One Up On Wall Street.
Lynch ran the US-based Fidelity Magellan fund from 1977 to 1990 and racked up an incredible annualised return of 29%. In One Up On Wall Street, Lynch wrote about a general checklist he had used when he was searching for investing opportunities. Let’s run ComfortDelGro through the checklist and see what turns up.
1. The Price-Earnings ratio: Is it low or high for this particular company and for similar companies in the same industry (generally, low PEs are preferred)?
Right now, ComfortDelGro has a PE ratio of 14.4. The chart below shows the land transport operator’s PE ratio over the past five years, and you can see that the current valuation multiple is near a five-year low. This suggests that ComfortDelGro’s PE ratio is not high.
Source: S&P Global Market Intelligence
There are no real peers in the Singapore stock market for ComfortDelGro, so we can’t tell whether the land transport operator’s valuation is high or low when compared to similar companies.
2. What is the percentage of institutional ownership? The lower the better.
This criterion was added by Lynch because he thought that companies that were not noticed by institutional investors (big money managers) tended to make for better bargains.
In the case of ComfortDelGro, as of 6 March 2017, the investment firm BlackRock. Inc was the only institutional investor that held a stake of larger than 5% in the company (BlackRock owned 6.01% of ComfortDelGro’s shares back then).
3. Are insiders buying and whether the company itself is buying back its own shares? Both are good signs.
Over the past six months, there have been no instances of insider buying, or the company repurchasing shares.
4. What is the record of earnings growth and whether the earnings are sporadic or consistent?
Here’s a record of ComfortDelGro’s earnings over the past decade from 2006 to 2016:
Source: S&P Global Market Intelligence
It turns out that ComfortDelGro has been consistently profitable for a long period of time, and its earnings per share has also been trending higher. But, the rate of growth has been anaemic – between 2006 and 2016, the compound annual growth rate for ComfortDelGro’s earnings per share was just 2.2%.
5. Does the company have a strong balance sheet?
Based on its latest financials as of 30 September 2017, ComfortDelGro had S$538.1 million in cash and equivalents, and just S$350.1 million in total debt. This leaves a net cash position of S$188 million, which means ComfortDelGro has a solid balance sheet.
A Final take
On the positive side, ComfortDelGro has a PE ratio that’s near a five-year low, a low level of institutional ownership, a good record in generating profits, and a strong balance sheet. On the negative side, ComfortDelGro has a lack of buybacks and insider buying, and anaemic long-term growth in earnings.
Given what we’ve seen, it’s possible that Lynch would be interested to take a deeper look at ComfortDelGro. But, it’s worth noting that Lynch’s checklist, as useful as it may be, should only be seen as an informative 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 owns shares in ComfortDelGro Corporation.