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Invested in ST Engineering at the right price.

Friday, February 24, 2017

Reader says...
Hi AK,

I remembered you mentioned ST Engineering in one of the session (Evening with AK and friends) a couple of years back (2015) and shared that through one of your readers, you have a greater understanding of their business model. 







At that point, you mentioned you would look at entering the market if it goes below $2.9 per share, it was hovering around $3.2.

It was my first time attending your session so my memory is pretty hazy. 


But I am hoping if you can shed more insights in how you look at valuing ST Engineering? 

I managed to scoop a little shares at $2.7! :)

Thanks,
YC





AK says...
Hi YC,

That was probably many moons ago. $2.7 a share is a very good price. 


I would hold on to it. ST Engineering is a good income generating asset. :)

I shared how I valued ST Engineering using PE ratio before. 


I said this towards the end of 2014 when ST Engineering was trading at $3.30 a share:


Best wishes,
AK

Although I continue to be invested in ST Engineering because I like the consistent and meaningful dividends, to add to my investment, I will not pay more than a 20x PE ratio. 




With FY16 earnings per share (EPS) at 15.6c, that means I would not pay more than $3.12 per share.
Related post:
Mystical art of wealth accumulation.

11 comments:

AK71 said...

Knowing the value of a stock helped this reader to buy at a right price.

Price is what we pay. Value is what we get.

AK71 said...

Reader says...
Is it a good price to buy ST Engineering now?

AK says...
Valuation can be subjective and, often, it is.
You should have your own idea on how much something is worth.

AK71 said...

Reader says...
Thanks for your advice on the aerospace engineering sector a while back...st engineering is indeed better managed than sia engineering and the market is pricing that in.

AK says...
I dun give advice. BYHW -.-"

Unknown said...

Hi AK

Sorry to pull out such an old piece. ST Engineering at $2.80 caught my eye, and I remember this piece of yours. :-)

I am trying to run some numbers, really appreciate if you can guide me along and share your thoughts.

FY2019 EPS is 18.53cents, with aerospace contributing 46% ($269M of $578M of net profit).
You mentioned the at it PE 15X during the GFC.

With these details:

EPS 18.53 x 15 = $2.78
EPS 14.27 x 15 = $2.14 (assume 50% aerospace net profit disappear)
EPS 8.62 x 15 = $1.29 (assume 100% aerospace net profit disappear)


I am wondering which would you see as a good valuation scenario? Is the current price of $2.85 a good bargain?


Many thanks in advance!!

cheers
Elaine

AK71 said...

Hi Elaine,

Thanks for sharing the numbers.

The Aerospace business is indeed the big question mark here.

SIA just announced that more than 90% of their airplanes will be left to idle.

How long before we see things improve?

We are in unchartered waters here which is why I am pretty reticent.

I feel that it is safer to wait for the dust to settle even if it means losing some upside gains.

I said:

"There could be some rebounds in stock prices as, in a bear market, prices go down a river of hope.

"However, until I see signs of the downtrend breaking or, better still, a trend reversal, my war chests stay locked."

I still feel the same way.

Reference:
Mr. Market is coughing blood from COVID-19.

Unknown said...

Thank you, AK, for your reply.

I have been following your blog for a little short of 10 years now. And its only recently that i understand what you mean by "prices go down a river of hope".

So simple yet it says so much :-(

AK71 said...

Hi Unknown,

I guess you are Elaine?

Yes, prices go down a river of hope in a bear market.

In a bull market, they climb a wall of worries. ;p

Unknown said...

Yes yes, it is me! Sorry, forgot to sign off.

I need to stick this on my mirror! Ha!

In a bear market, prices go down a river of hope in a bear market.
In a bull market, they climb a wall of worries.

Cheers
Elaine

WTK said...

AK,

Well said. I do not think that there is a cause of concerns for the investors who are in for a long term.

WTK

AK71 said...

Hi Elaine,

I don't know if a change of name from "Unknown" to "Elaine" is allowed.

It would simplify things for you. :)

Hope and worry.

Fear and greed.

If we are to be investors, we have to understand emotions and what they do to us. :)

AK71 said...

Hi WTK,

To be fair, we can't say that for all businesses. ;)

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