Is Singapore Airlines Limited (SGX:C6L) Potentially Undervalued?
Today we're going to take a look at the well-established Singapore Airlines Limited (SGX:C6L). The company's stock received a lot of attention from a substantial price movement on the SGX over the last few months, increasing to S$7.58 at one point, and dropping to the lows of S$6.29. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Singapore Airlines' current trading price of S$6.44 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Singapore Airlines’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Singapore Airlines
What Is Singapore Airlines Worth?
Singapore Airlines appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Singapore Airlines’s ratio of 15.5x is above its peer average of 12.45x, which suggests the stock is trading at a higher price compared to the Airlines industry. Furthermore, Singapore Airlines’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will Singapore Airlines generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Singapore Airlines, at least in the near future.
What This Means For You
Are you a shareholder? If you believe C6L is currently trading above its peers, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on C6L for some time, now may not be the best time to enter into the stock. Its price has risen beyond its industry peers, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 2 warning signs for Singapore Airlines (1 is potentially serious!) that we believe deserve your full attention.
If you are no longer interested in Singapore Airlines, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
