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VTech Holdings Ltd (SEHK: 303) is a global supplier of electronic learning products from infancy to preschool and a leading manufacturer of cordless phones, based in Hong Kong.
At its current price of HK$69.60 (at the time of writing), VTech’s shares are trading at 26% below its 52-week high price of HK$93.50. This raises a question: Is VTech cheap now? This question is important because if the firm’s shares are cheap, it might be a good time for investors to pick up some shares on the cheap.
Clearly, there is no easy answer to the above question. However, we can still get some insight by comparing VTech’s current valuations with the market’s valuations. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
I will be using the iShares MSCI Hong Kong Index Fund (NYSEARCA: EWH) as a proxy for the market; the iShares MSCI Hong Kong ETF is an exchange-traded fund that tracks the MSCI Hong Kong Index, a market-cap-weighted index made up of a diverse selection of small-, mid- and large-cap stocks primarily traded on the Hong Kong Stock Exchange.
VTech currently has a PB ratio of 3.7, which is higher than that of the iShares MSCI Hong Kong ETF’s PB ratio of 1.3. Yet, its PE ratio of 12.9x is lower than the ETF’s PE ratio of 13.2x. However, the company’s dividend yield of 7.6% is significantly higher than the market’s average dividend yield of 3.2%. The lower the dividend yield, the higher the valuation.
Overall, I think VTech is trading at a reasonable valuation as compared to the market average, given its low PE ratio and high dividend yield. In particular, dividend investors might find the company’s high dividend yield to be extremely attractive at a time when interest rates are very low.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.