As investors, potential investment ideas can come from unloved industries which may present undervalued companies.
Today, one of these underappreciated industries is banking. In fact, after peaking in April last year, all three banks have seen their share price down by more than 15% from their respective peaks.
The banks’ weak stock price might draw some interest from investors. In particular, investors might want to know which bank among the three has the best valuation now. After all, investors are always searching for good value in the stock market.
In this article, thus we will try to answer this question: which is the cheapest bank among the trio local banks, namely DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11)?
To do so, we will compare the valuation metrics of the three banks (as of writing). The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
Price to book
To begin with, DBS Group, OCBC and UOB have PB ratios of 1.3, 1.1 and 1.1, respectively. The lower PB ratios for OCBC and UOB suggest that both companies have lower valuation (as compared to DBS Group) based on PB ratio.
Price to earnings
Next, DBS Group, OCBC and UOB have PE ratios of 11.8, 10.4 and 10.8, respectively. Here, OCBC appears to have the lowest valuation based on the PE ratio.
Last but not least, the respective dividend yield for DBS Group, OCBC and UOB are 4.7%, 3.9%, and 4.0%. The higher a stock’s yield is, the lower is its valuation. Thus, we can see that DBS Group has the lowest valuation in term of dividend yield.
Overall, we can argue that OCBC is probably the cheapest stocks among the local banks based on its low PB ratio and PE ratio.
Though insightful, investors are reminded that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it should be viewed only as a useful 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. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool has recommendations for DBS Group Holdings Ltd, Oversea-Chinese Banking Corporation Limited and United Overseas Bank Ltd.