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How To Unearth a Young and Growing Company

sand dig unearth Recently, one of our readers asked on our Facebook page how to find a young and growing company, with less than two years of listing, in the Singapore Exchange (SGX).

One of the ways to do that is with a stock screener. A stock screener allows an investor to set certain criteria and filter stocks according to those criteria. A young and growing company will tend to have a low dividend payout ratio as most of the profits generated are reinvested back into its business. An investor has to be mindful of this and adjust his criteria accordingly. Most stock brokerages like DBS Vickers, Phillip Securities and CIMB Securities offer their dedicated stock screeners. Google, Yahoo and Financial Times offer their own stock screeners as well. The beauty of the stock screeners offered by these three companies is that they allow investors to screen for stocks from all over the world (stocks from Bosnia and Herzegowina, anyone?).

Another way to discover young and growing companies would be to scour through our local newspapers like The Straits Times and The Business Times, or visit our website. The balloting results of IPOs, once the subscription window is closed, are also published in our newspapers.

SGX has a dedicated page on the performance of IPOs for the preceding year and the current year. One can also find the IPO prospectus of companies in the same page too. You can also find IPO prospectuses of established companies as well.

Some recent IPOs include Neo Group Limited (SGX: 5UJ), Cordlife Group Limited (SGX: P8A) and Overseas Education Limited (SGX: RQ1). The net profit margins of the companies are at 7.2%, 38.9% and 21.5% respectively. All three companies have return on equity above 17%. Another notable thing is that all three companies have negligible or no debt.

Investing in a young and growing company allows the investor to participate in the growth of the company. Investing in the right growing company and it may translate to higher capital gains for the investor than investing in established blue chips. However, young and growing companies may also carry a higher risk than stalwarts like the Keppel Corps and the Capitalands. Each investor will have to decide if the potential rewards more than make up for the risks taken when investing in such companies. Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

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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 Sudhan P doesn’t own shares in any companies mentioned.