StarHub Ltd (SGX: CC3) is one of three companies in the telecommunication industry, along with Singapore Telecommunications Limited and ahead of M1 Ltd.
At their current price of S$1.53 (at the time of writing), Starhub’s shares are trading at 30% below their 52-week high price of S$2.19. Is Starhub cheap now? If shares are cheap, it might be a good opportunity for investors.
There is no easy answer, but we can get some insight by comparing Starhub’s current valuation with the market’s valuation. We’ll use three common valuation metrics: the price-to-book (P/B) ratio, price-to-earnings (P/E) 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).
Starhub currently has a P/B ratio of 4.6, which is higher than the SPDR STI ETF’s P/B ratio of 1.1. Similarly, its P/E ratio is higher than that of the SPDR STI ETF’s (14.3 vs. 12.3). On the other hand, the conglomerate’s dividend yield of 9.3% is higher than the market’s yield of 3.5%. The higher a stock’s yield, the lower its valuation.
Starhub is priced at a premium to the market average due to its high P/B ratio and high P/E ratio, offset partially by its high dividend yield.
Given its high dividend yield, income investors might be interested to take a deeper look at the company now. Here, one particular area investors should focus on is the sustainability of Starhub’s dividend income going forward.
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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