BreadTalk Group Limited (SGX: 5DA) is an F&B company that has three main business segments, namely bakery, restaurant, and food atrium. At its current price of S$0.71 (at the time of writing), BreadTalk’s shares are trading at 42% below its 52-week high price of S$1.22.
Not only that but its shares are also trading close to their 52-week low. As a bargain hunter, I naturally get attracted to companies that are trading at close to 52-week lows since there’s where investors might pick up some bargains.
One of the main questions that I will ask here is whether BreadTalk is really cheap (a low price doesn’t automatically mean a low valuation). Only if the company is trading at an attractive valuation will I carry on with the next stage of my research process.
Unfortunately, there is no easy answer to the above question. However, we can still get some insight by comparing BreadTalk’s current valuations with the market’s valuations. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
BreadTalk currently has a PB ratio of 3.3, which is higher than that of the SPDR STI ETF’s PB ratio of 1.0. Similarly, its PE ratio is higher than that of the SPDR STI ETF’s (26.3 vs 11.9). Moreover, the company’s dividend yield of 2.1% is lower than the market’s yield of 3.4%. The lower a stock’s yield is, the higher its valuation.
In sum, we can argue that BreadTalk is priced at a premium to the market given its high PB ratio, high PE ratio, and low dividend yield. Normally, I would end my research here since my purpose is to hunt for bargain stocks. Nevertheless, investors might want to carry out further research on the fundamentals of the company since studying these might reveal more about the attractiveness of BreadTalk as a potential investment.
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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 Singapore 2019