Oversea-Chinese Banking Corp Limited (SGX: O39), or OCBC, is one of the three main local banks listed in Singapore.
At the current price of S$11.35 (at the time of writing), OCBC’s shares are down around 19% from its peak in May this year. This raises a question: Is OCBC cheap now? This question is important because if the firm’s shares are cheap, it might be a good opportunity for investors.
Unfortunately, there is no easy answer. However, we can still get some insights by comparing OCBC’s current valuations with the market’s valuation. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; 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).
OCBC currently has a PB ratio of 1.2, which is higher than the SPDR STI ETF’s PB ratio of 1.1. Yet, OCBC’s PE ratio is lower than that of the SPDR STI ETF’s (11.0 vs 11.6).
In terms of dividend yield, the bank’s dividend yield of 3.3% is lower than the market’s yield of 3.5%. The lower a stock’s yield is, the higher is its valuation.
In sum, we can argue that Oversea-Chinese Banking Corp is priced fairly as compared to the market given its high PB ratio and low dividend yield, offset partially by its low PE ratio.
Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.
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.