Seroja Investments Limited (SGX:IW5), a SGD$17.57M small-cap, operates in the shipping industry which has been affected by the double-digit e-commerce growth and the inroads that it is making in the business-to-business arena. Transport analysts are forecasting for the whole industry, an extremely elevated growth of 48.94% in the upcoming year . Today, I will analyse the industry outlook, and also determine whether Seroja Investments is a laggard or leader relative to its transportation sector peers. View our latest analysis for Seroja Investments
What’s the catalyst for Seroja Investments’s sector growth?
Transportation and logistics have changed immensely over the past decade. In particular, shipping is no longer seen as a tactical decision influenced solely by cost, but rather a strategic consideration based on factors such as customer expectations, sales volume, and product mix. Over the past year, the industry saw negative growth of -23.55%, underperforming the Singapore market growth of 7.92%. Seroja Investments lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Seroja Investments may be trading cheaper than its peers.
Is Seroja Investments and the sector relatively cheap?
The shipping industry is trading at a PE ratio of 20x, above the broader Singapore stock market PE of 14x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 5.80% compared to the market’s 7.94%, which may be indicative of past headwinds. Since Seroja Investments’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Seroja Investments’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Seroja Investments has been a shipping industry laggard in the past year. If your initial investment thesis is around the growth prospects of Seroja Investments, there are other shipping companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Seroja Investments fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Seroja Investments has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its shipping peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Seroja Investments’s future cash flows in order to assess whether the stock is trading at a reasonable price.