Did a quick check on the list of Singapore Stocks using the Google Finance Stock Screener. Trying to look for high growth stocks with low or no debt.
Basically my criteria is as follows:
- A min 5 yrs EPS growth rate of 7 (this is quite controversial – would be better if it is 10)
- Return on equity (5 yrs average) of min. 18%
- Return on assets of min 14%
- Current ratio of more than 1.5.
- Total debt / equity of less than 15%.
The results (see below):
I currently own the shares of 4 of these companies (highlighted in yellow).
Vicom Ltd would not be in this list if I did not lower min 5 yrs EPS growth rate to 7. In addition, Super Group Ltd would also be not in this list if I raise the bar for Net Profit Margin to min 15%.
ARA Asset Management Ltd, Cordlife Group Ltd and Dutech Holdings Ltd have relatively higher debt to equity ratio (and would not make the list if I raise the bar). This is probably one of the reasons why I prefer the others.
I briefly glanced through Dutech’s 2014 Annual Report. Noticed that its profit increased exponentially in recent years (however its profit dropped from 2010 to 2011). However, its free cash flows over the years (past 10 yrs) did not consistently trend up. ARA is one of the good companies as stated by Motley Fools (read here, here and here). However its recent financial quarter performance is anything but good- with a 22% profit decline yoy (read here). And personally, I don’t like companies that deal with REITS given the high debt and increasing interest rate environment (ARA’s revenue from the REITs business segment contributed 56.5% of total sales for the financial year ended 2013).
Silverlake Axis Ltd stands out due to its high ROE, Net Profit Margin & ROA. It obviously has a strong business moat. Not uncommon for a software provider, as the banks would find it a hassle (and perhaps expensive) to switch provider. Its high returns & low expenditure on asset (cost) is also usual for software providers. Unfortunately, its business model is not within my circle of competence (did not use it), and I regard it as being in a very competitive industry. I would prefer a low profile, easy to understand, low tech, high entry barrier industry (1 foot hurdle type).
“Circling back to software, Adobe’s moat is also based on switching costs. Its Photoshop and Illustrator programs are taught to budding designers in school, and they’re complex enough that switching to another program would mean significant retraining. Another software company, Autodesk, which makes the AutoCAD digital-design software that is used to spec out everything from bridges to buildings, is in an analogous position. Most engineers learn AutoCAD in college, and their future employers have no desire to incur the loss of productivity that would result from retraining them on new software.” Pg 58, The Little Book That Builds Wealth
“In technology, you can see that software companies tend to have an easier time creating moats than hardware companies……. A piece of software often needs to be integrated with other pieces of software to work properly, and this integration leads to customer lock-in and higher switching costs.” Pg 114, The Little Book That Builds Wealth
Sarine Technologies Ltd business is very specialised and much depends on the diamond industry / price. Nevertheless its financials suggest that it has a very strong moat.
Riverstone seems like the one in the Goldilocks’ zone (not too hot, not too cold). No debt, good EPS growth and good ROE / ROA, with simple business model selling cheap disposable gloves.
Hi, doing a screen on Hong Kong market seems to uncover a few gems, one of them being Huabao International, in my opinion. Would love to hear your take on this company if it interests you. It’s financials are rock solid, with a good 9 year track record. Business model also not too difficult to understand.
Did a post on Huabao (click here).