As investors, one of the areas to search for potential investment ideas is to look at unloved industries as such places may present undervalued companies. One of these industries right now is banking. In fact, after peaking in April this year, all three banks have seen their share prices down by more than 10% from their respective peaks.
The banks’ weak stock prices might draw some interest from investors. In particular, investors might want to know which bank among the three has the lowest valuation now. After all, investors are always searching for great value in the stock market. In this article, I’ll try to answer this question: which is the cheapest bank among the three big 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.
To begin with, DBS Group, OCBC, and UOB have PB ratios of 1.2, 1.0 and 1.0, respectively. The lower PB ratios for OCBC and UOB suggest that both companies have lower valuations (as compared to DBS Group) based on the PB ratio.
Next, DBS Group, OCBC, and UOB have PE ratios of 11.1, 9.8 and 10.2, respectively. Here, OCBC appears to have the lowest valuation based on its relatively low PE ratio.
Last but not least, the respective dividend yields for DBS Group, OCBC and UOB are 6.2%, 4.1%, and 4.3%. The higher a stock’s yield is, the lower is its valuation. Thus, we can see that DBS Group has the lowest valuation in terms of dividend yield.
Overall, we can argue that OCBC is probably the cheapest among the local banks due to its low PB and PE ratios.
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 before investing.
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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. The Motley Fool Singapore has recommended the shares of DBS Group Holdings Ltd, Oversea-Chinese Banking Corporation Limited and United Overseas Bank Ltd.