Samsonite International S.A. (SEHK:1910), the world's largest travel luggage company, is principally engaged in the design, manufacturing, sourcing, and distribution of luggage, business and computer bags, outdoor bags and travel accessories. The group owns brands such as Samsonite, Tumi, American Tourister, Speck, High Sierra, and Hartmann.
Over the past year, Samsonite's share price has retreated after registering a high at HK$26.75 and now stands at HK$17.84 (as at the time of writing). Has the sharp decline in Samsonite's share price made it a bargain at its current price?
To decide, I'll use two metrics; the price-to-earnings (PE) ratio and the dividend yield.
Is Samsonite cheap?
The travel conglomerate has a trailing twelve months (TTM) earnings per share of US$0.151. Based on the conversion of US$1 = HK$7.82, earnings are HK$1.181. With Samsonite's current share price standing at HK$17.84, this implies a PE ratio of 15.1. This is lower compared to its 5-year average PE which stands at 20.68.
The low PE ratio alone should not form the basis for an investor to purchase shares of Samsonite. This is because often companies that can be classified as value traps possess such characteristics. A value trap is a stock that appears to be cheap because the stock has been trading at low valuation metrics.
Investors should thus also look at the revenue growth rate of the company, which should give some indication as to how the company is performing. In Samsonite's case, a quick check shows that the travel luggage conglomerate has grown revenue at 16% over the past three years. This should give investors some confidence that the low PE ratio might be due to temporary setbacks that the company is facing.
Next, let us have a quick look at Samsonite's dividend. Over the last five years, Samsonite has paid out an increasing dividend which moved from HK$0.4839 per share in FY2014 to S$0.6819 in FY2018. Assuming the company pays out a dividend at the same rate as FY2018 this would lead to a yield of 3.8% at current prices.
The increasing dividends paid out by Samsonite is another indicator that management is confident about the company's growth prospects going out into the future.
Looking at the two metrics, Samsonite seems to be attractively priced currently. While investors might be worried about getting into a value trap, the growing revenue and increasing dividend payout by Samsonite should provide some relief on this front.
However, it would be prudent for investors to dig deeper to understand the fundamental reasons behind the lower share price currently and if the business environment for Samsonite will improve in the future.
A version of this article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.