Someone asked me about the Intrinsic value of Riverstone Holdings Ltd. My previous post stated 0.5, but that was done in Jan 2015. Thought I do an update on that here (see below).
First let’s look at the estimated 5 years earning growth which is 14.90%. Let’s assume a 20% discount, the figure will be 11.92%.
Given EPS and a PE ratio, stock price can easily be calculated for any company. Using the below formula.
F = P(1+R)N where:
- F = the future EPS
- P = the starting (present) EPS (0.08)
- R = compound growth rate (11.92)
- N = number of years in the future (5)
Estimated future EPS: 0.14
I will be estimating the future PE of Riverstone Ltd to be 9.5 (See data from Morningstar below) Average of the PE from 2006 to 2014.
Future Stock Price
- P = future stock price
- EPS = future EPS
- PE = future PE
Hence future stock price of Riverstone Holdings Ltd is 9.5 x 0.14 = 1.33
- P = present (intrinsic) value
- F = future stock price (1.33)
- R = MARR (15% or 0.15)
- N = Number of years (5)
Hence, the intrinsic value of Riverstone Holdings Ltd is 0.66.
Stock price of Riverstone Holdings Ltd on 24 Aug 2015 is 1.60. There no margin of safety.
What is your average price on Riverstone? If you don’t mind. Riverstone is also not immune in this bear market. The current price is too high compared to your calculated intrinsic value. Do you have any plan on this bear market?
Sorry I don’t reveal my average buying price. However it is definitely more than the intrinsic value. Intrinsic value is one of the thing I think about when buying a stock but it is not the only consideration. The growth story and outlook + mundane, disposable, low cost product +good management are the other factors I consider.
The price of this stock has risen a lot in a very short time so am not adding to this position yet.
Plan for this beat market? Slowly dip in. I like Colex cause it’s growth story will not be affected much and price is lower than intrinsic value.
Hi, Interisting analysis of Riverstone. I to like companies with a disposable product in the healthcare sector like for example BDX with sharps. What do you think is the moat of Riverstone and what differentiates Riverstones products to other companies? Could it be low cost advantage, quality, brand power, scale or something else. I made a quick google-scan and there seems to be a lot of competing companies on a global scale which indicates that the competition is high. To me it seems to be a commodity type product which necessarily does not have to be a bad thing if there is some other competetive advantage.
Best regards Axl
I did a post on the comparison of Riverstone with the other significant competitors in Malaysia (namely Supermax Corporation Berhad & Kossan Rubber Industries Bhd)- found an article on detailing that.
“In comparison to its competitors, Riverstone(RS) ROE is higher than Supermax (after 2010) and more constant (at 20%) due to RS zero debt and efficient management. RS also has the highest ROA as compared to Kossan and Supermax. However, RS gross profit margin is the lowest. Nevertheless its ROE is ranked 2nd and the rubber glove manufacturing industry is relatively stable ensuring profits stay stable.”
Personally, I reckon the main advantage of Riverstone is their willingness for customisation to meet customers’ needs and niche business in Nitrile gloves.
Nitrile gloves contribute like >90% of Riverstone Revenue. Nitrile prices are a lot less volatile, and production techniques continue to get better. Since nitrile is a man-made product, the production is not as subject to the whims of Mother Nature as latex.
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