The Motley Fool

2 Cheap Retailers in Singapore

Hour Glass Ltd (SGX: AGS) and Cortina Holdings Limited (SGX: C41) are luxury watch retailers that have a network of retail outlets around the Asia Pacific. Both are consistently profitable and have a long track record in the business. However, despite their consistency, the two luxury watch retailers still trade at relatively low valuations compared to other retail businesses. One of the main reasons is because of the volatile nature of luxury watch demand.

But investors may have overlooked a few fundamental aspects of the two specialised retail players. The pair have rock-solid balance sheets, healthy cash flows and long-term partnerships with well-known luxury watch brands such as Rolex and Patek Philippe. What’s perhaps less well-known is that these strategic partnerships have enabled both the companies to be able to stock highly-coveted watches that other retailers do not have access to, thus creating a unique economic moat.

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With that said, here are three important valuation metrics that show why these two companies could be bargains.

Price-to-book ratio

Despite a recent uptick in the stock prices of both retailers, they still trade slightly below their respective net asset value (NAV) per share. The table below shows their respective stock price and net asset value per share.

Source: Author’s compilation of data from earnings reports

Price-to-earnings ratio

On top of the discount to their book value, both companies have strong cash flows and earnings. The table below shows their earnings per share and trailing price-to-earnings multiples over the last 12 months.

Source: Author’s compilation of data from earnings reports

Enterprise value

Lastly, the enterprise value (EV) removes the distorting effect of cash on the balance sheet. The enterprise value is essentially how much it would take to acquire the company. Both companies are flush with cash, resulting in low enterprise values relative to EBITDA (earnings before interest tax depreciation and amortisation).

Source: Author’s compilation of data from earnings reports

The Foolish Conclusion

Considering that both these luxury watch retailers’ NAVs have been consistently increasing over the last five years, the discount to their book value could mark a good entry point for bargain hunters.

In addition, both companies reported strong earnings this year and have been consistently cash-flow positive. Add the fact that, as both are cash rich, the actual amounts paid for the enterprises are less than four times their recurring EBITDA.

With the two companies trading at such cheap valuations, these stocks could be a good addition to the portfolio of bargain hunters searching out solid long-term returns.

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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 Jeremy Chia owns shares in Hour Glass Ltd.