Today we're going to take a look at the well-established Singapore Airlines Limited (SGX:C6L). The company's stock saw significant share price movement during recent months on the SGX, rising to highs of S$7.37 and falling to the lows of S$6.24. 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$6.55 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.
What's The Opportunity In Singapore Airlines?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that Singapore Airlines's ratio of 10.15x is trading slightly above its industry peers' ratio of 9.4x, which means if you buy Singapore Airlines today, you'd be paying a relatively sensible price for it. And if you believe that Singapore Airlines should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Singapore Airlines's share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
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? Currently, C6L appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on C6L, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping tabs on C6L for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there's less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven't considered today, which can help gel your views on C6L should the price fluctuate below the industry PE ratio.
So while earnings quality is important, it's equally important to consider the risks facing Singapore Airlines at this point in time. Be aware that Singapore Airlines is showing 2 warning signs in our investment analysis and 1 of those is significant...
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.