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Sembcorp Industries Limited’s Stock Lost 26% In Value Last Year. Is It Cheap Now?

Lawrence Nga
confused value investing

Sembcorp Industries Limited (SGX: U96) is a bona fide conglomerate with four major business segments: Utilities; Marine; Urban Development; and Other Businesses.

At the current price of S$2.65, Sembcorp Industries’ stock price is down about 26% from its 52 weeks high of S$3.60. This raises a question: Is Sembcorp Industries cheap now? This question is important because if the firm’s shares are cheap, it might be a good opportunity for investors.

Unfortunately, there is no easy answer. However, we can still get some insight by comparing Sembcorp Industries’ 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).

Sembcorp Industries currently has a PB ratio of 0.7, which is lower than the SPDR STI ETF’s PB ratio of 1.1. Yet, its PE ratio is higher than that of the SPDR STI ETF’s (29.8 vs 11.3). Also, the conglomerate’s dividend yield of 1.5% is lower than the market’s yield of 3.6%. The lower a stock’s yield is, the higher is its valuation.

In sum, we can argue that Sembcorp Industries is NOT priced at a discount to the market average due to its high PE ratio and low dividend yield. Yet, deep value investors might be interested in the company due to its low PB ratio.

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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. The Motley Fool Singapore does not have any recommendations for any companies mentioned.