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27-01-2011, 05:33 PM
Came across this article on SharesInvestment.com and thought it would be interesting to share for discussion here. Full article at http://www.sharesinv.com/articles/2011/0...peg-ratio/
I see some familiar names in the table (in the article) such as Challenger, Kingsmen, Low Keng Huat etc.
Of the 6 eventually shortlisted here (i.e. China Mobile, Etika International, Fragrance Group, Keppel Corp, Poh Tiong Choon, Rotary Engineering and Transpac Industrial) I was wondering whether anyone has done any research on them before?
His article reproduced below here for reference -
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Not too long ago, Gerald wrote about Finding Value with price/earnings-to-growth (PEG) ratio. Do read it as it provides the background for this article. Having decided to take the idea further, I screened the Singapore Exchange for stocks that are trading at attractive PEG ratios over the weekend, with the following criteria:
1. Price-to-earnings ratios (display only)
2. 5-year EPS growth of more than 15 percent
3. 5-year revenue growth of more than 15 percent
4. Return-on-equity (ROE) of more than 15 percent
5. Debt-to-equity ratio of less than 2
The first two are necessary to find the PEG ratios, while I added the third to filter out companies that might have slowed down in sales growth momentum. I also only wanted to include those companies making a decent ROE while at the same time not being over-leveraged, hence the last two criteria.
Unsurprisingly, out of the slightly over 800 companies traded on the Singapore Exchange, inclusive of the American Depository Receipts, only 26 passed the screen (see table below). Readers are encouraged from here on, to do thorough research on the counters in the table and understand each company’s business operations and management team.
Taking It Even Further
But for discussion purposes, let me make some comments. Firstly, small companies based on market capitalization make up most of the table. They are able to grow their earnings faster percentage-wise, due to their low base.
Secondly, construction-related plays form a visible business segment in an otherwise motley-looking line up. This could be due to them being beneficiaries of the domestic and regional infrastructure boom. That said, there are two rig-builders, Keppel Corp and SembCorp, which benefitted from riding a boom cycle in their industry.
Investors should ask themselves during the course of their research, whether such earnings growth will be sustainable.
On a separate note, I would narrow the list further by excluding those companies trading more than 3 times book and less than 8 times earnings. This is essentially a “goldilocks†approach to filtering the companies.
My rationale is that while we obviously do not want to over pay for a stock as judged by relatively high PE and PB ratios, we also want to guard ourselves from falling into a “value trapâ€. There may be other hidden explanations why some stocks fall out of favor with investors and continually trade at low PEs.
Nonetheless, 6 companies and 1 ADR made it through my enhanced selection criteria, namely, China Mobile, Etika International, Fragrance Group, Keppel Corp, Poh Tiong Choon, Rotary Engineering and Transpac Industrial. All of them have a PEG ratio of under 0.51 times.
Will the strategy of combining low PEG ratios and “goldilocks†approach work? I will revisit them 2 financial quarters on, so keep an eye on this space!
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I see some familiar names in the table (in the article) such as Challenger, Kingsmen, Low Keng Huat etc.
Of the 6 eventually shortlisted here (i.e. China Mobile, Etika International, Fragrance Group, Keppel Corp, Poh Tiong Choon, Rotary Engineering and Transpac Industrial) I was wondering whether anyone has done any research on them before?
His article reproduced below here for reference -
-------------------------------------------------------------------
Not too long ago, Gerald wrote about Finding Value with price/earnings-to-growth (PEG) ratio. Do read it as it provides the background for this article. Having decided to take the idea further, I screened the Singapore Exchange for stocks that are trading at attractive PEG ratios over the weekend, with the following criteria:
1. Price-to-earnings ratios (display only)
2. 5-year EPS growth of more than 15 percent
3. 5-year revenue growth of more than 15 percent
4. Return-on-equity (ROE) of more than 15 percent
5. Debt-to-equity ratio of less than 2
The first two are necessary to find the PEG ratios, while I added the third to filter out companies that might have slowed down in sales growth momentum. I also only wanted to include those companies making a decent ROE while at the same time not being over-leveraged, hence the last two criteria.
Unsurprisingly, out of the slightly over 800 companies traded on the Singapore Exchange, inclusive of the American Depository Receipts, only 26 passed the screen (see table below). Readers are encouraged from here on, to do thorough research on the counters in the table and understand each company’s business operations and management team.
Taking It Even Further
But for discussion purposes, let me make some comments. Firstly, small companies based on market capitalization make up most of the table. They are able to grow their earnings faster percentage-wise, due to their low base.
Secondly, construction-related plays form a visible business segment in an otherwise motley-looking line up. This could be due to them being beneficiaries of the domestic and regional infrastructure boom. That said, there are two rig-builders, Keppel Corp and SembCorp, which benefitted from riding a boom cycle in their industry.
Investors should ask themselves during the course of their research, whether such earnings growth will be sustainable.
On a separate note, I would narrow the list further by excluding those companies trading more than 3 times book and less than 8 times earnings. This is essentially a “goldilocks†approach to filtering the companies.
My rationale is that while we obviously do not want to over pay for a stock as judged by relatively high PE and PB ratios, we also want to guard ourselves from falling into a “value trapâ€. There may be other hidden explanations why some stocks fall out of favor with investors and continually trade at low PEs.
Nonetheless, 6 companies and 1 ADR made it through my enhanced selection criteria, namely, China Mobile, Etika International, Fragrance Group, Keppel Corp, Poh Tiong Choon, Rotary Engineering and Transpac Industrial. All of them have a PEG ratio of under 0.51 times.
Will the strategy of combining low PEG ratios and “goldilocks†approach work? I will revisit them 2 financial quarters on, so keep an eye on this space!
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