After Falling By 22% In 3 Months, Is Venture Corporation Ltd A Bargain Now?

Over the past three months, electronics services provider Venture Corporation Ltd  (SGX: V03) has seen its stock price fall by a sharp 21.9% to S$21.02 currently. This is a significantly steeper decline than the Straits Times Index’s (SGX: ^STI) fall of just 2.4% in the same time frame.

Investors may thus wonder if Venture’s a bargain right now. Unfortunately, there is no easy answer, but we may still be able to get some insight into the question from an investing checklist that Peter Lynch shared in his classic investment text One Up On Wall Street.

Lynch is a great investor who ran the US-based Fidelity Magellan fund from 1977 to 1990 and racked up an incredible annualised return of 29% in that period. In One Up On Wall Street, Lynch wrote about a general checklist he had used when he was researching stocks. Let’s run Venture 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, Venture has a PE ratio of 14.6. The chart below shows the company’s PE ratio over the past five years, and you can see that Venture’s current valuation multiple is near a five-year low. This suggests that the company’s PE ratio is low.

Source: S&P Global Market Intelligence

For another perspective, we can look at the PE ratios of companies that are in a similar line of business as Venture. These include Valuetronics Holdings Limited (SGX: BN2) and Memtech International Ltd (SGX: BOL). Right now, the duo both have PE ratios of 9.8. From this angle, Venture’s PE ratio appears to be high.

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.

According to Venture’s 2017 annual report, it does have a high level of institutional ownership. As of 9 March 2018, there were three different groups of institutional investors that each owned 5% or more of the company’s stock. The institutions were The PNC Financial Services Group, BlackRock Inc., and Schroders PLC.

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 bouts of insider buying taking place at Venture. But, the company has been buying back its own shares. In that period, Venture had bought a total of 325,000 shares for a sum of S$6.84 million.

4. What is the record of earnings growth and whether the earnings are sporadic or consistent?

Here’s a record of Venture’s earnings per share over the past decade from 2007 to 2017:

Source: S&P Global Market Intelligence

We can see that Venture has been consistently generating profits for a long time. But, there has been no sustained long-term trend of growth in the company’s earnings per share numbers.

5. Does the company have a strong balance sheet?

Based on its latest financials as of 31 March 2018, Venture had S$765.3 million in cash and equivalents, and just S$40.7 million in total debt. That’s a really healthy balance sheet.

A Final take

On the positive side, Venture has a PE ratio that’s near a five-year low, a good record in generating profits, the presence of share buybacks, and a strong balance sheet. The negatives are its high PE ratio in relation to its peers, its  high institutional ownership, and a lack of consistent growth in profits.

Judging from the results of the checklist, Lynch would probably be interested in conducting a deeper dive into Venture at its current price. 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. The Motley Fool Singapore writer Chong Ser Jing owns shares in Valuetronics Holdings.