Investors constantly engage in an elusive search for companies that are both cheap and great. For both conditions to be fulfilled is not an easy task, as many companies are either cheap for a good reason or great but trade at expensive valuations. In some cases, though, companies could be mispriced because of either a lack of awareness or some misunderstanding regarding their business model or prospects.
When reviewing traits that make a great company, we should take into account not just quantitative factors (though these are obviously important), but also qualitative factors such as the track record of the company, its reputation and also its market share. Companies that have a strong operating track record with a prudent and competent management team can compound investors’ wealth over many years.
Here are two cheap companies that investors can consider buying for long-term growth.
1. Cortina Holdings Limited
Cortina Holdings Limited (SGX: C41) is a leading retailer and distributor of luxury timepieces across the Asia-Pacific region. The group sells a variety of luxury watch brands and has a total of 24 boutiques located in major cities in Asia such as Taiwan, Malaysia, Thailand and Indonesia.
Cortina has a strong track record of selling luxury timepieces in Asia and was founded way back in 1972. In its recent FY 2019 earnings (it has a 31 March year-end), revenue was flat at S$460.8 million, but net profit attributable to shareholders jumped by 31% year-on-year to S$29.2 million. Earnings per share stood at 17.7 Singapore cents, and at the last traded price of S$1.31, Cortina was trading at a price-earnings ratio of only 7.4x.
It was recently reported by the Federation of the Swiss Watch Industry that in H1 2019, Singapore was just one of four markets in the world to post double-digit growth rates, clocking a strong 12.6% year-on-year growth to 599.5 million Swiss Francs. This makes Singapore the sixth biggest market globally for Swiss Watches, and augers well for Cortina’s future business.
For Cortina’s Q1 2020, revenue increased by 20% year-on-year while profit after tax soared 69% year-on-year. The group continues to display great growth prospects even amid the current US-China trade tensions, and its trailing 12-month dividend yield stands at 4.2%
2. Valuetronics Holdings Limited
Valuetronics Holdings Limited (SGX: BN2) is an electronics manufacturing services provider that has two key divisions – industrial and commercial electronics (ICE) and consumer electronics (CE). The group’s main manufacturing facility is located in Guangdong Province in China.
For the group’s FY 2019 earnings, revenue dipped slightly while net profit also declined 2.6% year-on-year to HK$199.5 million. Earnings per share stood at 46.1 HK cents or around 8.2 Singapore cents. At the last traded price of S$0.63, Valuetronics had a trailing price-earnings ratio of just 7.8x.
The group has been operating for many years and has an enviable track record along with a portfolio of strong clients in the electronics and automotive industries. Valuetronics maintains a clean balance sheet with no debt, and its products are used by electronic companies that are riding on the “Internet of Things” trend. This should create sustained demand for the group’s products.
The US-China trade war has implications for the group, though, and Valuetronics has leased some land in Vietnam to mitigate this risk. The facility there has been qualified by the customer and shipments to the US have already started. In the future, Valuetronics intends to acquire a plot of land to build a manufacturing facility in Vietnam in order to reduce reliance on China.
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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 Royston Yang does not own shares in any of the companies mentioned.
Motley Fool Singapore 2019