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Would Warren Buffett Buy Noble Group Limited?

noble groupSince the turn of the Millennium, Noble Group (SGX: N21) has delivered a total return of around 14% a year for shareholders. That is outstanding.

But is the commodity trader, which was founded by scrap-metal dealer Richard Elma, outstanding enough for Warren Buffett.

Buffett likes businesses with low earnings volatility. Noble Group doesn’t fare too badly in that department, even though its fortunes are governed by prevailing commodity prices. Over the last six years, its average Net Income, which has been around S$570m, has varied by only 30%.

Unfortunately, Noble’s margins are not especially high. Its Net Income Margin of around 0.5% pales in comparison to other blue chips. The median Net Income Margin for the 30 companies that make up the Straits Times Index is 15%.

Noble’s level of borrowings is something that Warren Buffet could find a little off-putting too. Its Total Debt of S$6.5b is almost as much as the total shareholder equity. A highly Leverage company could introduce additional risk, which could show up as unwanted share-price volatility.

However, Noble more than redeems itself with an exceptionally high Asset Turnover, which can be a sign of efficiency. That is something Warren Buffett would like to see. Noble’s Asset Turnover of 4.9 is nearly ten times higher than the market average.

Noble has been a good investment. However, it doesn’t quite tick all the boxes for a Warren Buffett stock. Or put another way, it might be one of those seven-foot bars that need to be jumped over rather than a one-foot bar that Buffett can easily step over.

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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 Director David Kuo doesn’t own shares in any companies mentioned.