MENU

SIA Engineering Company Ltd’s Stock Price Is At A 52-Week Low: Would It Attract Warren Buffett’s Investing Mentor?

Aircraft maintenance, repair, and overhaul services provider SIA Engineering Company Ltd (SGX: S59) currently has a stock price of S$3.12, which is the 52-week low.

Given this situation, investors may be wondering if SIA Engineering is a bargain stock. For some perspective, it could be useful to look at SIA Engineering through the eyes of the late Benjamin Graham.

Graham may not be very well-known to the general public, but he’s a bona-fide investing legend. He was the investing mentor of billionaire investor Warren Buffett, and also authored two classic investment books, namely, Security Analysis and The Intelligent Investor. In his days as a professional investor, Graham loved searching for bargains. And during his career, he had developed a 10-point investing checklist which can help us look at stocks from his vantage point.

Let’s run SIA Engineering through the checklist and see what turns up.

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 SIA Engineering’s current stock price, it has an earnings-to-price yield of 4.94% thanks to its trailing earnings of S$0.154 per share.

Data from the Monetary Authority of Singapore show that the 10-year Singapore government bond has a yield of ‘only’ 2.04% right now. I trust it’s obvious to see that SIA Engineering’s earnings-to-price yield is more than twice the figure of 2.04%. (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 SIA Engineering has had in the past five years is 26.1. The company is not able to clear the hurdle here given that 40% of the max P/E ratio of 26.1 is 10.4, which is much lower than the company’s current P/E ratio of 20.3.

Verdict: No

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

Based on SIA Engineering’s dividend of S$0.18 per share for its fiscal year ended 31 March 2017 (FY2017), it has a dividend yield of 5.77%. That’s more than the triple-A bond yield of 2.04%.

Verdict: Yes

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

According to SIA Engineering’s latest financials (as of 30 September 2017), it has a tangible book value per share of S$1.24. The company’s current stock price is way higher.

Verdict: No

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

SIA Engineering fails this hurdle too. At its current stock price, it has a market capitalisation of S$3.51 billion; its net current asset value is merely S$566.1 million.

Verdict: No

6. Total debt less than tangible book value

This is where SIA Engineering shines. It has total debt of just S$26.8 million, and a tangible book value of S$1.38 billion.

Verdict: Yes

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

With total current assets of S$871.6 million and total current liabilities of S$257.7 million, SIA Engineering has a current ratio of 3.38.

Verdict: Yes

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 SIA Engineering has done well here.

Verdict: Yes

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

SIA Engineering’s earnings per share has compounded at just 2.6% over the last 10 years

Verdict: No

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

From its FY2007 to F2017, SIA Engineering saw its earnings per share fall by 5% or more in just two separate years (FY2010 had a 9.6% decline, while FY2015 experienced a 31.5% fall).

Verdict: Yes

In a roundup of the scores, SIA Engineering has managed to meet six of Graham’s 10 criteria. With such a result, Graham may be interested to dig deeper with SIA Engineering.

For more investing tips and updates on what's happening in the world of finance, you can sign up here for a FREE subscription to The Motley Fool's investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot 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 writer Chong Ser Jing doesn't own shares in any company mentioned.