2 Reasons To Dislike Thai Beverage Public Company Limited From The Perspective Of A Growth Investor

Growth investors are investors who aim to invest in companies that are able to grow their businesses at high rates in the future.

In a previous article, I had pointed out reasons why growth investors may find beer brewer and spirits distiller Thai Beverage Public Company Limited (SGX: Y92) to be an interesting candidate for further research. But, the company also has negative traits that investors should be aware of; in this article, I want to discuss two such traits.

A high valuation

Ideally as investors, we should always buy a stock at less than its actual economic value.

One way to gauge whether Thai Beverage has a high, fair, or low valuation is to compare its price-to-earnings (PE) ratio to the market. I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market, since the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of the Straits Times Index  (SGX: ^STI).

With a stock price of S$0.83, Thai Beverage has a PE ratio of 17.1. This is significantly higher than the SPDR STI ETF’s PE ratio of 11.7. Generally, it’s very difficult to find growth companies that are trading at a PE ratio that’s below the market’s. But, we still need to make sure that the price we pay is fair in order to give us a better chance at earning a reasonable return.

In the case of Thai Beverage, investors have to decide whether paying a 46% premium to the market average is reasonable. Personally, I find the price a little too steep.

Weak recent results

In Thai Beverage’s latest earnings update (for the quarter ended 31 December 2017), the company turned in a weak performance.

Revenue for the quarter was down 2.6% year-on-year to THB 46.8 billion, while net profit sank by 61% to THB 3.0 billion. Negative performances in Thai Beverage’s Spirits and Beer business segments were culprits. There was growth in the Food and Non-Alcoholic Beverages segments, but they were not enough to overcome the declines elsewhere.

I find Thai Beverage’s latest results to be concerning. This is especially so given that the company has a high valuation.

A Foolish conclusion

There are things to like about Thai Beverage from the perspective of a growth investor, such as its track record of growing its business and its dividend. But, Thai Beverage also has a high valuation, and delivered a poor business performance recently. These are risks investors should be aware of.

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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.