Today we're going to take a look at the well-established Singapore Airlines Limited (SGX:C6L). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the SGX. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company's outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let's examine Singapore Airlines's valuation and outlook in more detail to determine if there's still a bargain opportunity.
Is Singapore Airlines Still Cheap?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. 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 8.86x is trading slightly below its industry peers' ratio of 10.1x, which means if you buy Singapore Airlines today, you'd be paying a decent price for it. And if you believe Singapore Airlines should be trading in this range, then there isn't much room for the share price to grow beyond the levels of other industry peers over the long-term. 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.
Can we expect growth from Singapore Airlines?
Future outlook is an important aspect when you're looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. Though in the case of Singapore Airlines, it is expected to deliver a highly negative earnings growth in the next few years, 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, 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 reduce the risk in your portfolio. Is your current exposure to the stock beneficial 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 optimal 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 C6L should the price fluctuate below the industry PE ratio.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Singapore Airlines (of which 1 is a bit concerning!) you should know about.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
