The 19th-century American author Mark Twain once said that, “If you hold a cat by the tail, you learn things you cannot learn any other way.” He was talking about how we learn best when we make mistakes. My colleague Morgan Housel disagrees though – he thinks it’s much easier to watch someone else make the mistake and then learn from it. For me, it doesn’t really matter who makes the mistake, so long as I get to learn something from it. Learning from success But as important as learning from mistakes are, it’s also important to learn from…
The 19th-century American author Mark Twain once said that, “If you hold a cat by the tail, you learn things you cannot learn any other way.” He was talking about how we learn best when we make mistakes.
My colleague Morgan Housel disagrees though – he thinks it’s much easier to watch someone else make the mistake and then learn from it. For me, it doesn’t really matter who makes the mistake, so long as I get to learn something from it.
Learning from success
But as important as learning from mistakes are, it’s also important to learn from our own successes as well those of others. By connecting the dots, we might yet hit upon a winning formula. That’s one of the reasons why I study the kinds of shares successful investors hold, as well as analyse how they think about investing and the share market.
Although Draper Fisher Jurvestson might not be an organisation which invests in shares of publicly-listed companies, the venture capital firm has seen great success by giving early backing (i.e. making an investment years prior to a company’s listing) to some of the best publicly-listed growth companies in the past decade like Baidu and Tesla Motors.
And when it comes to picking those high-flying growth companies for Mark Bailey, an executive at Draper Fisher Jurvetson, one particularly important metric is a company’s total addressable market (TAM).
In the spirit of learning from the success of others, here’s how the concept might work in Singapore’s share market.
Getting the TAM
Events-catering outfit Neo Group Ltd (SGX: 5UJ) was listed on July 2012. In its listing prospectus, the company highlighted the research done by Euromonitor International: In 2011, Neo Group was the largest events-caterer in Singapore with a 9% share of an events-catering market valued at S$306.6 million. That’s not all – in the prospectus, Euromonitor also pegged the events-catering market to grow at around 12.9% per year between 2012 and 2014.
Assuming the prediction is sound, we’re looking at an events catering market of around S$420 million in size today. With Neo Group clocking S$39 million in sales for its Food Catering segment in the past 12 months, there’s still a huge TAM for it to conquer even if the events catering market stagnates from here.
Making the TAM count
But, having outsized opportunities for growth is one matter. Having the ability to conquer the market is another. On that front, there are clues on Neo Group’s ability to make its TAM count.
One such clue is found in the following statement given in the company’s 2014 Annual Report:
“One of our hallmark services is the Buffet Express service where customers can take delivery of buffet meals, catering for up to 500 persons, in just three hours from order confirmation.”
Having the ability to meet such huge orders given such tight timelines suggests that the company can take orders no other competitor can and is likely to possess the best infrastructure for its line of work (economies of scale in purchasing raw materials, a highly effective centralised kitchen, an efficient delivery network etc.).
Another such clue is Neo Group’s ability to get its clients to stick with its service. And on that front, double-digit year-on-year growth in number of guests served per year serves as a great indicator.
Foolish Bottom Line
In light of all the above, it’s perhaps no surprise to see Neo Group being a solid market beater. Since its listing at a price of S$0.30 per share, Neo Group has gained some 210% to its current price of S$0.93. In comparison, the Straits Times Index (SGX: ^STI) has increased by barely 10% to its current level of 3,295 points. Along the way, Neo Group’s trailing price/earnings (PE) ratio has also expanded from 9 to 21, suggesting that the market is catching on to its potential for growth.
Bear in mind though, that I’m certainly not trying to make any sort of call on Neo Group’s shares. Rather, what I’ve shared is meant to serve as an example of how Bailey’s interesting TAM-concept can be put into action to find the next big growth share. After all, growth investing can bring great rewards, and who better to learn from than the best?
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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 writer Chong Ser Jing owns shares in Neo Group.