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Why Has Singapore O&G Ltd’s Stock Price Dropped By Nearly Half In The Last 12 Months?

Singapore O&G Ltd  (SGX: 1D8) is a healthcare company that was listed on June 2015. It has four main operating business segments at the moment, namely, Obstetrics and Gynaecology, Cancer-related, Dermatology, and Paediatrics.

Over the last 12 months, Singapore O&G’s stock price has fallen by 47% to S$0.345 currently. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Singapore O&G

In Singapore O&G’s case, I believe both factors were at play.

In 2017, Singapore O&G reported that its full year revenue was up by 4.3% to S$29.9 million. Yet, its operating profit and net profit were down by 5.1% and 3.4%, respectively, to S$9.87 million and S$8.51 million, as compared to 2016. Earlier, I stated that a company’s profit is one of the main drivers of its stock price. So, the decline in Singapore O&G’s profitability may have directly contributed towards the 47% fall in its stock price over the last 12 months.

Still, the magnitude of the decline in the company’s stock price far exceeds the decline in its net profit in 2017. As such, it is not unreasonable to say that investors’ sentiment towards Singapore O&G has turned negative over the last 12 months.

But what might have caused the negative sentiment? It’s difficult to pinpoint the exact reasons. But I see two possible causes. Firstly, investors may have turned negative toward the Singapore healthcare industry as a whole, due to the perceived weakness in the competitiveness of Singapore’s medical tourism scene.

Secondly, Singapore O&G was trading at a price-to-earnings (PE) ratio of 35 a year ago (a stock price S$0.65 and earnings of 1.87 cents per share). That’s a high valuation, and it implies that investors were expecting significant growth from the company. Yet, as I mentioned earlier, Singapore O&G’s growth in 2017 was disappointing – revenue was up by only 4.3%, while the bottom-line declined slightly. This may have resulted in the market deciding to award the company with a much lower PE ratio; Singapore O&G’s PE ratio is at 19 currently.

What’s next?

Although Singapore O&G’s stock price has already fallen significantly over the last 12 months, its PE ratio is still substantially higher than the SPDR STI ETF’s (SGX: ES3) PE ratio of 11.4. The SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

So, Singapore O&G must still prove to investors that it is capable of growing its business going forward.

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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.