Riverstone Holdings Limited (The one that got away)

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Now why would I write about a stock that has been consistently reaching new highs. After all, isn’t value investing about searching for bargains, under-valued stocks? Shouldn’t I be looking at those stocks reaching their 52 weeks low?

I have previously written a number of posts on Riverstone Holdings Limited:

  1. Brief take on SMRT and Riverstone Financial reports (read here)
  2. Earnings and Riverstone Holdings Limited (read here)
  3. Trailing price/earnings to growth (PEG): Vicom, Riverstone, SuperGroup, ISOteam, Colex, Nera Tel & Raffles Medical (read here)
  4. Value + Growth (Raffles Medical, Vicom, Riverstone, Supergroup & ISOTeam) – so what? (read here)
  5. Value + Growth (Raffles Medical, Vicom, Riverstone, Supergroup & ISOTeam) (read here)

I guess there is a distinction between GARP (Growth at reasonable price) investing and Deep Value investing. For the former, didn’t Warren Buffett famously say, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”? If so, why am I so hesitant in buying this stock?

‘Growth At A Reasonable Price – GARP‘:  An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks.

The concept of growth is something very hard to comprehend and not easy to master. It is more an Art than Arithmetical Science. There is more of the Fuzzy Logic – something more qualitative than quantitative. For someone who is a ‘bargain hunter / vulture’ at heart, it is hard to have a leap of faith and purchase this good company when its share price keep reaching new high every week (although recently its stock price did dropped a bit). Not to mention with all the ‘bad’ news around, eg. the possible market crash, China markets plunge, interest rate hike, etc.

Kind of remind me of Mr Peter Lim when he took a leap of faith (in Mr Kuok Khoon Hong) and invested $10 million in a palm oil start-up that became Wilmar International, one of Asia’s largest agribusinesses (read here).

“The investor of today does not profit from yesterday’s growth.” Warren Buffett

“A strong gut is a more important prerequisite for success in the markets than a sharp brain.” Peter Lynch

Technically, if a company’s earning keep increasing (exponentially) , the intrinsic value (and CAGR) will keep getting higher (the bar keeps getting higher). However stock price in the short term does not follow any rules.

“If a business does well, the stock eventually follows.” Warren Buffett

 

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Among my portfolio of stocks, I feel that this is one of the few company whose products and business model is scalable, and whereby the management is willing to make an effort to innovate & expand. To Mr Wong Teek Son, the founder and Chief Executive Officer of Riverstone Holdings Limited, just expanding via building more factories is a lazy way to expand. Watching him giving a speech to investors, I can sense that this man has integrity. In addition, being the founder and CEO, he has been instrumental in expanding the Group’s customer base and cementing business relationships with its international customers. I can sense that he is very hands on (one of the few who is prepared to present personally to investors, and answer questions by analysts). Having a personal stake and a long history with this company, I am sure the company is very close to Mr Wong’s heart. Put it in another way, he is the kind of guy whom you want your daughter to marry (if he is younger). Now to describe this would take another post / essay.

WongTeekSon.nra9.13

400_Wong_Teek_Son_11.14

With consistently good quarterly results, coupled with macro economics / situations that seem to go its way (favourable USD/RM forex rates, ,tax incentives and Mers), it is no wonder that the stock prices have been constantly hitting new high.

The idea of PEG is popularized by Peter Lynch, who wrote in his 1989 book One Up on Wall Street that “The P/E ratio of any company that’s fairly priced will equal its growth rate”, i.e., a fairly valued company will have its PEG equal to 1.

Let’s look at the Trailing PEG.

  • P/E: 24.60
  • Dividend Yield: 1.52
  • 5 years EPS growth rate: 14.90
  • Trailing PEG: 24.6/(14.9+1.52) = 1.5

Not easy to see the growth potential back then and add more then. In fact, the amount I invested in Vicom shares is 3 times more than what I invested in Riverstone. I also started investing in Vicom shares much earlier (eg. in 2011) as compared to when I first started investing in Riverstone (2013). However, the paper gain I obtained from Riverstone is almost on par with the paper gain of Vicom.

Shall leave you with this.

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room flat.
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7 Responses to Riverstone Holdings Limited (The one that got away)

  1. mslee888 says:

    Riverstone is a good company in a relatively resilient industry. With USD strengthening and costs in RM, they are in a sweet spot now. Across the causeway, you can also look at Hartalega, Top Glove, etc. At least can give you some peace of mind if there is concern or worry if RS is getting a bit overpriced.

    Like

  2. juny1 says:

    Hi A Pen Quote. Please continue to write. Love to read your posts and analysis on companies. BTW am a fellow Riverstone shareholder too. Vested since 2011.

    Like

  3. JS says:

    Indeed thank you apendquotes. I am also a fellow Riverstone shareholder vested since 2013. 🙂

    Like

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