Is It Time To Consider Buying Penguin International Limited (SGX:BTM)?

Penguin International Limited (SGX:BTM), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the SGX. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on Penguin International’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Penguin International

What's the opportunity in Penguin International?

According to my 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, 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 Penguin International’s ratio of 9.57x is trading in-line with its industry peers’ ratio, which means if you buy Penguin International today, you’d be paying a relatively sensible price for it. Although, there may be an opportunity to buy in the future. This is because Penguin International’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Penguin International?

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. Though in the case of Penguin International, it is expected to deliver a negative earnings growth of -2.9%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Currently, BTM 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 BTM, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BTM 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. Furthermore, 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 crystallize your views on BTM should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Penguin International at this point in time. Case in point: We've spotted 5 warning signs for Penguin International you should be mindful of and 1 of them shouldn't be ignored.

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This article by Simply Wall St is general in nature. 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.
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