Who doesn’t like a great deal? Be it socks or stocks, buying something at a discount is always extra satisfying. So, I did a simple stock screen to find two fundamentally sound companies trading well below their peaks.
Time to recruit HRnet?
HRnetGroup Ltd (SGX: CHZ) has been hit hard by the challenging macroeconomic conditions in Asia. In the second quarter of 2019, the recruitment company’s revenue inched down 0.5%, while net profit attributable to shareholders tumbled 11.5%.
Its core business was affected by muted hiring, particularly in Singapore. Its bottom line was also affected by the absence of government subsidies and an unrealised loss of some of its investments.
It is, therefore, no surprise to see its stock tumble some 40% from its all-time high. At its current price of S$0.58, it also trades well below its initial public offering (IPO) price of S$0.90.
However, long-term investors could see the stock as a bargain now. HRnetGroup has a solid track record of growth, starting from just a four-man operation to become the largest recruitment firm in Asia (excluding Japan). With founder Peter Sim still at the helm, the odds are that the company’s experienced management team will find a way to steer it back onto the right path.
Despite the harsh economic conditions, HRnetGroup is still very profitable. The company, which is still majority-owned by Peter Sim and his family, generated S$30.8 million in net profit to shareholders and S$27.8 million in free cash flow over the first half of 2019.
HRnet is also flush with cash, with S$271 million sitting in its coffers and no debt as of 30 June 2019.
The group recently flexed its financial muscle to increase its stake in UK-listed Staffline to 25.4%, and it hopes to leverage its technology platform in the future.
HRnet’s core business is also heavily tied to the economy. When (and not if) the economy recovers, it will likely see its core business return to growth.
With shares trading at all-time lows, its valuation looks compelling. The company has a trailing dividend yield of 4.8% and an annualised price-to-earnings ratio of 9.5. Considering its cash balance alone makes up 46% of its entire market cap, HRnetGroup looks to be in bargain territory now.
Value in Valuetronics?
Manufacturing company Valuetronics Holdings Limited (SGX: BN2) is one of the names affected by the ongoing US-China trade war. All of the company’s factories are in China, but it ships 45% of its products to the United States. In its latest earnings announcement, the company said around half of its products shipped to the US incurred a 25% tariff.
On a brighter note, Valuetronics has already taken steps to reduce its susceptibility to the trade war. It leased a production facility in Vietnam, which began mass production in June of this year. The company is also looking to purchase its own plot of land in Vietnam, and with its strong cash position of HK$900 million, it has the financial muscle to do so.
At its current share price of S$0.64, Valuetronics’ net cash makes up more than 60% of its market cap. It also has attractive earnings and dividend yields of 14% and 7%, respectively.
At such attractive valuations, it could be a good time to start or add to a position in Valuetronics.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of HRnet Group Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in HRnet Group Ltd.