After Jumping 34% In 3 Months, Is There More Room To Run For Neptune Orient Lines Ltd?

Over the past three months, shares of shipping outfit Neptune Orient Lines Ltd (SGX: N03) have had an impressive run up of 34% in price. This has happened even as the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks the Straits Times Index (SGX: ^STI), has gained just 3%.

Given the sharp run-up in such a short-time, it’s perhaps a good time to ask: What’s next for Neptune Orient Lines’ shares over the long-term future?

Poor business performance

A good way to answer the question would be to understand how Neptune Orient Lines’ business has performed in the past. Although we should never invest purely by looking into the rear-view mirror, the past does give us a basis for judging how the future may look like.

Neptune Orient Lines' net income and operating cash flow from 2004 to 2014

Source: S&P Capital IQ

Unfortunately, this is where Neptune Orient Lines has plenty of room for improvement. Over the decade ended 2014, the company has failed to show any consistent growth in profits and operating cash flow.

In fact, the two important financial metrics for judging the health of a business have been negative for a good number of years for the shipping outfit. These dynamics are depicted in the chart above.

Neptune Orient Lines' returns on equity (ROE), total cash and short-term investments, and total debt from 2004 to 2014

Source: S&P Capital IQ

In the next chart (the one immediately above), we can see how Neptune Orient Lines’ returns on equity (ROE) and balance sheet figures have looked like over the past 10 years.

I trust it’s obvious that the firm’s economics have been dismal (as represented by the declining ROE) and that its balance sheet has grown weaker over time given the increasing amount of borrowings.

Neptune Orient Lines’ dreadful business performance over the past decade has likely been the main reason why its share price is down by more than 54% to S$0.99 today since the start of 2004.

A Fool’s take

None of the above is meant to say that Neptune Orient Lines will definitely be a poor investment going forward. That’s because positive changes might already be happening to its business as we speak.

But with the company’s poor long-term track record that we’re seeing, investors might have to wade in carefully with their eyes wide open to the potential risks involved if they’re looking at the firm as a long-term investment.

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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 does not own any companies listed above.