The article first appeared on Investor-One on 1 July 2021. Click here for more of such articles.

Price/Earning-to-Growth (“PEG”) ratio is used to determine a stock’s value while also considering the company’s expected earnings growth, and it is thought to provide a more complete picture than the more standard Price/Earning (“PE”) ratio.

The formula to derive is as follow:

[PE Ratio/Earning Per Share (“EPS”) Growth] 

Like the PE ratio, a lower PEG may indicate that a stock is undervalued, while a higher PEG may indicate that a stock is overvalued.

With that said, here are 5 such companies which have managed to achieve a PEG ratio below 1 time in the past 3 years, which includes:

  • CSE Global Limited (SGX: 544)
  • Engro Corporation Limited (SGX: S44)
  • LHN Limited (SGX: 41O)
  • Pan Hong Holdings Group Limited (SGX: P36)
  • Union Gas Holdings Limited (SGX: 1F2)

1) CSE Global Limited (SGX: 544) 

Listed on Singapore Exchange since 1999, CSE Global Limited (“CSE Global”) is a global technologies company with an international presence spanning the Americas, Asia Pacific, Europe, Middle East and Africa.

The Group has now more than 1,400 employees worldwide and operates a network of 42 offices across the globe, generating more than 90 percent of its revenues outside its home market.

Source: ShareInvestor WebPro 

CSE Global’s PEG ratio was not applicable in FY2017’s due to an operating loss that time. A sharp rebound in its earnings on the next year led to a record low for its PEG ratio of 0.075x.

Subsequently, as earnings growth stabilizes in FY2019 and FY2020, CSE Global’s PEG ratio hovered around 0.52 times, still indicating that the stock is undervalued.

CSE Global’s share price last traded at S$0.53, with a market capitalization of S$271.57 million.

2) Engro Corporation Limited (SGX: S44) 

Engro Corporation Limited (“Engro”) is engaged in the manufacturing and sale of cement and building materials, and specialty polymers. The Cement and building materials segment are engaged in the manufacturing and sale of cement, ready-mix concrete and building materials. The Specialty polymer segment is engaged in the manufacturing and sale of thermosetting synthetic resin and plastic materials.

Source: ShareInvestor WebPro 

For the past few financial years, Engro’s PE ratio has been on a decline as a result of the mixed financial performance achieved across the period. For FY2020, Engro’s PE ratio stood at just 7.55 times, and its PEG ratio has also dipped from 0.28 times in FY2018 to 0.05 times in FY2020.

Engro’s share price last traded at S$1.40, with a market capitalization of S$166.18 million.

3) LHN Limited (SGX: 41O) 

LHN Limited is a real estate management services group, with the expertise in space optimisation, and logistics service provider headquartered in Singapore. The Group currently has three main business segments, namely: (i) Space Optimisation Business; (ii) Facilities Management Business; and (iii) Logistics Services Business, which are fully integrated and complement one another.

Source: ShareInvestor WebPro 

For the past few financial years, LHN’s PE and PEG ratio has been on a declining trend despite having a relative growth in its financial performance across the period.

LHN’s PEG ratio declined to just 0.01 times in FY2020, from a high of 0.10 times in FY2018. This shows that the company is largely undervalued, and the market is not factoring its earning’s growth.

LHN’s share price last traded at S$0.375, with a market capitalization of S$153.35 million.

4) Pan Hong Holdings Group Limited (SGX: P36)

Pan Hong Holdings Group Limited (“Pan Hong”) is a Singapore-based investment holding company. The Company operates as a property developer. It focuses on developing residential and commercial properties in the second and third-tier cities in the People’s Republic of China (PRC).

The Company operates through two segments: Northern Region, which includes its business in Northern provinces or cities of the PRC, and Southern Region, which includes the Company’s business in southern provinces or cities of the PRC.

Source: ShareInvestor WebPro 

For the past few financial years, Pan Hong’s PE and PEG ratio has been on a declining trend despite having a growing financial performance. Its PEG ratio has declined from 0.24 times in FY2019 to just 0.007 times in FY2021.

That said, investors should also take note of the cyclical effect of a property developer’s earnings growth for this particular ratio.

Pan Hong’s share price last traded at S$0.235, with a market capitalization of S$120.39 million.

5) Union Gas Holdings Limited (SGX: 1F2) 

Union Gas Holdings Limited (“Union Gas”) is an established provider of fuel products in Singapore with over 40 years of operating track record. Its three key businesses comprise Retail Liquefied Petroleum Gas (“LPG”), Compressed Natural Gas (“CNG”), and Diesel.

Source: ShareInvestor WebPro 

With the sharp rise in its earnings in recent years, this brings about the normalisation of Union Gas’ PE ratio from 69.8 times to just 17.5 times in FY2020.

Furthermore, the declining trend in its PEG ratio from 0.21 times in FY2019 to just 0.08 times in FY2020 shows that its strong earnings growth is causing the company to undervalued at that time.

Union Gas’ share price last traded at S$1.04, with a market capitalization of S$238.12 million.

Conclusion

To summarize, investors can gain a better understanding about the company’s valuation because the PEG ratio incorporates the past earnings growth into the PE ratio.

That said, investors should also look at the business model of the respective company and other form of financial metrics when conducting a comprehensive analysis on each individual company.

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