Warren Buffett once said that as an investor, it is important to be “fearful when others are greedy and greedy when others are fearful.” The idea is simple. When everyone is buying shares in a company, it’s unlikely that the its shares will be a good bargain. On the other hand, when others are shying away from the shares of a company, we might be able to pick up some at a good price.
How can we tell if investors are staying away from a company’s shares? One way is by seeing if it has fallen hard in recent times. In this article, I will look at two blue-chip shares with prices that have declined significantly from their respective highs over the past year: SATS Ltd (SGX: S58) and Thai Beverage Public Company Limited (SGX: Y92). They are blue-chips because they’re part of the 30 constituents of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
Source: SGX StockFacts
The first on our list is SATS. As a quick introduction, SATS is a company providing food solutions and gateway services solutions. The Food Solutions covers airline catering, food distribution, and industrial catering, whereas Gateway Solutions is involved in ground handling services of passengers, flights and cargo.
SATS did well in its latest quarter. For the three months ended 30 September 2018, SATS reported that revenue was up by 4.2% year-on-year to S$453.1 million. Similarly, operating profit improved by 8.0% to S$66.0 million, driven mainly by higher revenue and better operating margin. Underlying net profit for the quarter was up 0.8% year on year to S$65.7 million, after stripping out a one-time S$7 million gain recorded a year ago from the sale of assets. What’s more, SATS had a strong balance sheet of S$281.7 million in cash and S$96.4 million in debt, as at 30 September 2018.
One thing to note is that in spite of the recent sell-off, SATS is trading at a price-to-earnings (PE) ratio that is significantly higher than the market average of 11.0 (I’m using SPDR STI ETF (SGX: ES3) as a proxy for the market).
Next, there’s Thai Beverage. As a quick introduction, Thai Beverage is a company operating in four different segments, namely, Spirits, Beer, Food, and Non-Alcoholic Beverages.
Unlike SATS, Thai Beverage had a challenging fiscal 2018. Though it reported higher revenue (up 20.9% year-on-year to THB 229.7 billion), its net profit attributable to shareholders fell 46.3% year-on-year to THB 18.5 billion. Excluding one-off items, net profit attributable to shareholders would have dropped by 19.1% instead. What’s concerning is that with the exception of its Food segment, all other segments reported lower profitability for the year.
The weaker performance has resulted in a lower dividend payment for the company. Including THB 0.15 interim dividend paid, the total dividend per share for fiscal 2018 was THB 0.39. This was down from THB 0.67 dividend per share paid out a year ago.
Similar to SATS, Thai Beverage is trading at a PE ratio that is much higher than the market average.
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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. Motley Fool Singapore has a recommendation for SATS Ltd.