Healthcare companies are generally considered as defensive stocks since their services are needed in both good and bad times. As such, the prevailing view is that healthcare companies tend to act as a hedge during a downward market.
Given their defensive nature, it is not surprising to see that most of these companies are trading at high valuations. But still, we don’t want to pay an excessive price to buy these stocks.
Here, we will compare the valuation of three major healthcare-related stocks listed in Singapore, namely, IHH Healthcare Berhad (SGX: Q0F), Raffles Medical Group Ltd (SGX: BSL) and Top Glove (SGX: BVA). What we will do is to find the company with the lowest valuation (as at 15 September 2018) through three valuation metrics: price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
To begin with, IHH Healthcare, Raffles Medical and Top Glove have PB ratios of 1.9, 2.6 and 5.6, respectively. Here, we can see that IHH Healthcare has the lowest valuation.
Next, IHH Healthcare, Raffles Medical and Top Glove have PE ratios of 48.4, 28.0 and 40.1 respectively. Here, Raffles Medical is trading at the lowest valuation in terms of PE ratio.
Last but not least, the respective dividend yield for IHH Healthcare, Raffles Medical and Top Glove are 0.6%, 2.0% and 1.5%. The higher a stock’s yield is, the lower is its valuation. Thus, we can see that Raffles Medical has the lowest valuation from this perspective.
The Foolish conclusion
In all, we can argue that Raffles Medical is probably the cheapest stocks among the local healthcare companies due to its low PE ratio and high dividend yield.
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. Motley Fool has recommendations for Raffles Medical Group Ltd and Top Glove.