I’m a value investor. So, I like to search for companies that are trading at good value. A list of stocks that are near their respective 52-week lows is a good place to start my search for a good reason.
These are the stocks that are either neglected or beaten down by investors. And, some of these stocks can be bargains in relation to their actual economic worth because market participants can at times react too negatively to certain companies that have sound long-term prospects but have experienced some short-term stumbles.
As such, I will screen for stocks that are trading near 52-week lows nearly once every week. There are many stocks that pop up on my screen each time I run it. In here, let’s look at two such stocks that also happen to have small market capitalisations. They are No Signboard Holdings Ltd (SGX: 1G6) and Design Studio Group Ltd (SGX: D11).
Source: Google Finance Finance; SGX Stock Facts
Food & beverage retailer No Signboard, which has a market capitalisation of S$109 million, is a new company in Singapore’s stock market given that its initial public offering (IPO) was held less than two months ago in late November 2017. But, the company has been in business for 37 years.
No Signboard has three business segments: Restaurant (which houses the company’s No Signboard Seafood chain of seafood restaurants); Beer (which distributes the company’s own Draft Denmark brand of beer); and Ready Meal (a distributor of ready meals under the Powered by No Signboard brand).
In its first earnings update as a public company, No Signboard reported that revenue for its fiscal year ended 30 September 2017 (FY2017) was S$24.39 million, 7.3% higher than in FY2016. But, much faster growth in raw material costs (up 21.7%), staff costs (up 16.1%), and other operating expenses (up 58.1%) resulted in the company’s profit growing by only 1.6% to S$7.95 million.
The company mentioned in its earnings release that demand for its “premium seafood restaurants is expected to remain” and that it “is working on two new casual dining concept restaurants to be launched in FY2018.” There’s more on the Beer business segment:
“With the addition of another distributor for the Beer Business during the year, the Group expects the Beer Business to contribute positively to Group sales in FY2018. Meanwhile, the Group will be expanding its range of in-house beer brands to cater to different consumer tastes and increasing customer sophistication.
We are currently in discussions with several third parties in relation to the establishment of the Group’s own brewery to achieve a more cost-efficient production and faster response time to market.”
If you would like to know more about No Signboard’s opportunities for growth, you can check out an article written by my fellow Fool, Sudhan P.
Design Studio Group, which has a market capitalisation of S$141 million, is the next stock on my list. The company provides high-end interior fit-out and joinery solutions. It has two main business segments, namely, Residential property, and Hospitality and commercial.
In the first nine months of 2017, Design Studio Group suffered a 9.0% year-on-year decline in revenue to S$96.6 million. The lower top-line can be attributable to a decrease in contributions from its Residential Property business segment. Meanwhile, the company’s expenses grew in the period, driven by an increase in staff costs (related to a restructuring), travelling expenses, showroom-related expenses, and currency loses. As a result, the company’s profit attributable to shareholders declined by 54.0% to S$5.2 million.
On a slight positive note, Design Studio Group’s balance sheet remained strong with S$28.4 million in cash and finance leases of just S$75,000.
In its earnings release, the company provided the following comments regarding its outlook:
“As at 30 September 2017, the Group’s order book is S$146 million with a strong balance sheet and cash position.
As the Singapore residential and hospitality market picks-up and Malaysia, Thailand and China maintain their growth momentum; the Group is optimistic about its performance in these countries leading into FY2018.
The Group’s focus is to regain its market share in Singapore, and expand its international footprint organically in a measured and disciplined manner, aligned with the Group’s core business and strategy.”
A Foolish conclusion
It’s worth noting that not every company with a stock price near a 52-week low is a legitimate bargain. A declining stock price can decline yet further if the underlying business performance continues to weaken.
Nothing we’ve seen here about No Signboard and Design Studio Group should be taken as the final word on their investing merits. The information presented in this piece should be viewed only as a useful 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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.