Here’s a quick question for you: How much has the Straits Times Index (SGX: ^STI) gained in the last 12 months? With all the news of big dives in Japan’s Nikkei 225 Index dominating financial media and possible fears of contagion for our local market – given how the STI fell by almost 2% the week before when the Nikkei made a 7% plunge – it can be easy to miss the forest for the trees. So, here’s your answer for some perspective: The index is up more than 20% since 31 May 2012. Hurray! Investors who had…
Here’s a quick question for you: How much has the Straits Times Index (SGX: ^STI) gained in the last 12 months?
With all the news of big dives in Japan’s Nikkei 225 Index dominating financial media and possible fears of contagion for our local market – given how the STI fell by almost 2% the week before when the Nikkei made a 7% plunge – it can be easy to miss the forest for the trees. So, here’s your answer for some perspective: The index is up more than 20% since 31 May 2012. Hurray!
Investors who had purchased the index through index trackers like the Nikko AM Singapore STI ETF (SGX: G3B) would have been very happy indeed as a 20% annual gain is sizeable any way you slice it.
But, at the same time, there are also a handful of shares that have made annual gains far in excess of what the index achieved. Some have even made gains that are more than 10 times the index’s 20% return.
Let’s take a closer look at three such stocks in particular – Sino Grandness (SGX: JS5), Super Group (SGX: S10) and MTQ Corporation (SGX: M05). They’ve grown by 280%, 140% and 110% respectively and their share price performance along with the STI’s is shown in the graph below.
Source: Yahoo Finance
Sino Grandness, a vegetable and fruit canning company, got listed on the Mainboard exchange in 2009 and since then, had seen its earnings-per-share (EPS) jump by almost three times from S$0.08 in 2009 to S$0.214 in 2012.
Last year was a particularly good one for Sino Grandness as its per-share profits almost doubled from S$0.118 in 2011. The company’s recent first quarter results for 2013 continued the trend of double digit year-on-year earnings growth as quarterly EPS increased by 23% to S$0.052.
Such earnings performances would have gone a long way in propping up Sino Grandness’s share price. If we dig deeper into the other two companies, Super Group and MTQ, we’ll see similar trends as well.
2012 saw Super Group’s EPS increase by almost a third from S$0.111 in 2011 to S$0.142. Meanwhile, the instant beverage manufacturer’s first quarter results for this year saw a 25% bump up in per-share profits from S$0.317 a year ago to S$0.397.
At the risk of sounding like a broken record, here’s how MTQ Corporation, provider of engineering services to the oil & gas industry, performed for its financial year ended 31 March 2013 – EPS grew by 41% from S$0.163 in the previous year to S$0.231.
These three companies saw considerable share price increases, but underneath that, were three businesses that became more valuable as per-share profits grew.
An investing-related quote that’s a personal favourite of mine comes from American billionaire investor Warren Buffett – “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.”
Buffett focuses on businesses with ‘materially higher’ earnings because that is the kind of business or company that becomes more valuable over time as they churn out more profits.
Now, it’s not always the simple case of share prices moving higher just because earnings have gone up – valuations matter too. In fact, making decisions based on single-variable analysis in complex systems (and financial markets are without a doubt, complex) is dangerous.
But, it’s also true that companies that are chronic loss-makers are often poor investment choices. When taken in aggregate, perhaps it is companies that can make the cash-register work harder and harder each year that gives investors the best odds of success in the stock market.
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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 Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.