There are many ways to find shares with fast growing businesses which then go on to become great investments. For Mark Bailey, an executive at Draper Fisher Jurvetson, a venture capital firm which has given early backing to some of America’s best publicly-listed growth companies over the past decade like Baidu and Tesla Motors, one particularly important metric is a company’s total addressable market (TAM). When a firm couples a large TAM with an ability to capture the opportunity, it can be a potent cocktail for outsized returns for investors. In light of that, here’s a quick look…
There are many ways to find shares with fast growing businesses which then go on to become great investments.
For Mark Bailey, an executive at Draper Fisher Jurvetson, a venture capital firm which has given early backing to some of America’s best publicly-listed growth companies over the past decade like Baidu and Tesla Motors, one particularly important metric is a company’s total addressable market (TAM).
When a firm couples a large TAM with an ability to capture the opportunity, it can be a potent cocktail for outsized returns for investors.
In light of that, here’s a quick look at a company which does seem to have that huge room for growth.
With health comes growth
According to analyst reports, medical tourist spending in Singapore had hit around S$1.1 billion in 2013. Over the past 22 years since 1990, that amount of spending had actually grown by a compounded annual rate of almost 12.6% (though it must also be pointed out that medical tourist spending had been very cyclical in nature in those 22 years). Over the next six years from 2014 to 2020, however, research outfit Frost and Sullivan thinks the spending can grow at a slightly faster annual compounded rate of 13.0%.
For healthcare provider Raffles Medical Group Ltd. (SGX: R01), such growth in part of its market opportunity would likely sound like music to its ears. In 2013, more than one third of patients visiting the company’s flagship Raffles Hospital were foreigners. That year, Raffles Medical’s Hospital Services segment contributed to 63% of its total revenue of S$341 million. Some number crunching would thus reveal that foreign patients accounted for around S$70 million of the company’s total revenue.
With Frost and Sullivan’s estimated figures and an application of some simple arithmetic, total medical tourist spending in Singapore in 2020 would be around S$2 billion to S$2.5 billion. Given that spending from foreign patients accounts for “just” S$70 million in sales for Raffles Medical currently, the future opportunity in that area (which is measured in billions of dollars) is huge.
That’s also not to mention other sources of growth for the company’s total market opportunity. A simple one that comes to mind would be Singapore’s greying and growing population, which would logically necessitate a larger need for healthcare services in the future.
Foolish Bottom Line
Over the past decade since the start of 2004, Raffles Medical has displayed eye-catching returns as a result of equally stunning profit growth.
|1 January 2004||28 August 2014||% Change|
|Earnings per share||S$0.019||S$0.157||730%|
Source: S&P Capital IQ
That’s a great market-beating return delivered by the company. In comparison, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks Singapore’s market barometer the Straits Times Index (SGX: ^STI), has gained just 78.3% in price for the decade ended 31 July 2014.
If Raffles Medical can capture the TAM it has in the future to drive further profit growth, there might be more to come from the company for investors. Though that said, it’s far from a guarantee that the increase in Raffles Medical’s market opportunity can translate into commensurate corporate growth.
That’s because there’re lots of competition coming up from both new public and private hospitals. For instance, there’s the Connexion located at Farrer Park. It is“one of the world’s first integrated healthcare and hospitality complexes” and comprises “a specialist medical centre with 189 consultation suites” and a private tertiary hospital, among other related facilities. Such developments might give Raffles Medical a real run for its money.
So in conclusion, although there might be cause for optimism with Raffles Medical’s future in terms of its TAM, it’s still far from certain that the company can succeed given the challenges.
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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 Raffles Medical Group.