Updated: Feb 8, 2022
Recent news has caused the markets to fly into a chaos, as evident in the whipsaw in global equities the past few weeks. As it is our goal to provide with everyone the knowledge and ability to make informed investment decisions, the Richmond Everett Analyst team will be releasing weekly analysis on companies we believe are ripe for acquiring. Do stay tuned & share the love with your friends & family so as to ensure nobody loses out!
The COVID situation has caused many countries to go on lock down, forcing the aviation industry into a panic. Many airlines are grounding fleets, with Singapore Air announcing the 96% capacity grounding, locking of 138 planes in its fleet of 147. As of today, it's market value has crashed almost 50% when compared to the start of the year, hitting a low of $5 last week, and is currently sitting at $6.50 per share.
fig 1. SIA Stock Prices over 2Y
As evident in fig 1, SIA stock price has maintained a strong support level around the $9 mark, and was poised for a strong move upwards after acquiring Silk Air at the end of 2018, with 2020 being the year for releasing the planned cabin upgrades. However, at the outbreak of the COVID pandemic, airlines around the world saw their revenues and forecasts fall through the floor in response to quarantines and lock downs worldwide. As the pandemic ends, the airlines will see a quarter of sub-par profits at t+1, where t refers to the period at which the pandemic ends. After the release of this down quarter, shares should still be at an extremely low price relative to their Book Value. At t+2, the airlines will most likely see a rebound in travel as people around the world resume their travels, with many sure to be making up for lost time. It is at this point that their revenues will return, possibly even outperforming expectations.
The key estimate to look at when purchasing undervalued stocks should be the Price/Book value, which is calculated by taking the ratio of the current market value and the Book Value, found by subtracting liabilities from assets (Book Value = Assets - Liabilities). In essence, this is the cash value of the company if operations were to halt this very day, and mass liquidation occurs. Usually, companies are considered cheap if they are within 1.1-1.4 Price/Book Value, depending on the sector. However, due to the massive panic selling, SIA is currently trading at 0.53 times Book Value. This poses an extreme discount for anyone involved in the equity markets.
Because there is no actual change to the company's fundamental operations, the price is sure to rebound to its original equilibrium once the pandemic and fears have passed, assuming the management handles the issue of cash flow well, and successfully bides their time during this period.
It is clear that current selling is fueled purely by panic and "newbie money", which is pouring out of the markets like a flood. Once the market is clean, smart money will undoubtedly start pouring in to pick up the massive discounts in the stock market, further fueling the age-old expression "the poor get poorer and the rich get richer".
Our CEO will soon be releasing an article on this phenomenon and why it is so prominent, as well as how YOU can break out of the cycle immediately. To be the first to read them, do follow our Instagram @richmondeverettsg and drop us a dm, or send us a message on our website's live chat 24/7.
Disclaimer: Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets, instruments and statements profiled on this page are purely opinion and are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should conduct your own thorough research before making any investment decisions. We do not take responsibility in any way for any decisions made after reading this article.