Raffles Medical Group Ltd (SGX: BSL) runs hospital and healthcare services in Singapore. It also has a network of clinics in five countries and thirteen cities. Furthermore, it has two hospitals under development in China.
In the last 12 months, Raffles Medical share price came down significantly by 28% and is currently selling close to its 52-week low price. This raises a question: Is the company trading at a bargain now?
Unfortunately, there is no easy answer to this but we can compare Raffles Medical’s current valuation to the market in terms of three perspectives — price-to-book (PB), price-to-earnings (PE) and dividend yield. This should give us some hints as to whether the company is trading at a bargain price.
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).
Raffles Medical currently has a PB ratio of 1.9, which is higher than the SPDR STI ETF’s PB ratio of 1.3. This makes Raffles Medical 43% more expensive than the market based on the PB ratio. Similarly, Raffles Medical’s PE ratio is 133% higher than that of the SPDR STI ETF’s (26.3 vs 11.3).
Furthermore, Raffles Medical has a lower dividend yield of 1.9% as compared to the market’s yield of 2.9%. For dividend yield, the lower the yield, the higher the valuation. On that basis, Raffles Medical is currently trading at a premium of 53% to the market’s yield.
In sum, we can argue that Raffles Medical is probably not trading at a bargain price after all, despite losing more than a quarter of its market capitalisation in the last 12 months. This is due to its high PB ratio, high PE ratio and low dividend yield as compared to the market average.
Nevertheless, given that the company has historically grown its business over time, investors might want to assess its future growth prospects in relation to its valuation. After all, growth companies almost always trade at higher valuations than the market.
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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 has a recommendation for Raffles Medical Group Ltd.