City Developments Limited (SGX: C09), or CDL for short, is a real estate company. Its segments include property development, hotel operations, rental properties and others. At the current price of S$8.98 (at the time of writing), City Developments’ shares are trading at 29% below its 52-week high price of S$12.67. This raises a question: Is City Developments cheap now? This question is important because if the firm’s shares are cheap, it might be a good buying opportunity for investors.
Unfortunately, there is no easy answer. However, we can still get some insights by comparing City Developments’ current valuations with the market’s valuation. 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).
City Developments currently has a PB ratio of 0.8, which is lower than the SPDR STI ETF’s PB ratio of 1.2. Yet, its PE ratio is higher than that of the SPDR STI ETF’s (15.4 vs 13.0). In addition, the company’s dividend yield of 0.9% is lower than the market’s yield of 3.4%. The lower a stock’s yield is, the higher is its valuation.
In sum, we can argue that City Developments is priced fairly to the market average as its low PB ratio is offset by its high PE ratio and low dividend yield.
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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