There are two major listed supermarket shares in Singapore.
Dairy Farm International Holdings Ltd (SGX: D01) runs its retail business under brands such as Guardian, Cold Storage, Giant Hypermarket, and 7-Eleven while Sheng Siong Group Ltd (SGX: OV8) operates its namesake-branded stores.
Interestingly, both company shares have outperformed the Straits Times Index (SGX: ^STI) in 2018. Given the interest in the companies, investors might want to know which of the two supermarkets they should consider investing now.
In my previous articles here and here, I compared the recent earnings performance of both companies, as well as their track record of growth in the last five years. The first round was a draw between the two while Sheng Siong won the second round.
In this article, I will look at the last part of my comparison, which is on valuation. Here, I will compare the valuation metrics of the two supermarket chains. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
To begin, Dairy Farm and Sheng Siong have PB ratios of 7.4 and 5.9 respectively. The lower PB ratio for Sheng Siong suggests that it is better priced than Dairy Farm.
Next, Dairy Farm and Sheng Siong have PE ratios of 29.4 and 22.6 respectively. Again, Sheng Siong appears to have the better valuation based on its lower PE ratio.
Last but not least, the respective dividend yields for Dairy Farm and Sheng Siong are 2.3% and 3.2%. The higher a stock’s yield is, the lower is its valuation. Once again, we can see that Sheng Siong has the better valuation in terms of dividend yield.
Overall, we can argue that Sheng Siong is the cheaper one among the two companies.
The Foolish conclusion
In sum, Sheng Siong emerges as the overall winner by triumphing over Dairy Farm in two out of the three rounds. However, investors are reminded that the information presented here is by no means a recommendation to take any action on the shares mentioned. Instead, it should be viewed as a useful starting point for further research.
Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy
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 Dairy Farm International Holdings Ltd and Sheng Siong Group Ltd.