Would Warren Buffett Buy ARA Asset Management?

We know that Warren Buffett is not averse to investing in property. He has told us as much.

But he is not a fan of property speculation. He doesn’t mind property provided he knows just how much the property is capable of producing. It is his way of estimating the intrinsic value of the asset.

But what would he make of an asset manager such as ARA Asset Management (SGX: D1R)?

Warren Buffett likes business that exhibit reasonably low earnings volatility. This is something that describes ARA Asset Management well. Since 2007, the company, which manages Real Estate Investment Trusts (REITs), has grown its bottom-line at around 14% a year, with some degree predictability.

The profit margins at around 50% are both high and consistent. That is likely to please Buffett too.

Another thing that Buffett likes to look for is efficiency. ARA Asset Management’s Asset Turnover is respectable, though not exceptionally high. At 0.4, it implies that the company generates S$0.40 on every dollar of asset employed in the business. The median for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 0.5.

Interestingly, the REITs manager is not highly leveraged. Its Leverage Ratio of 1.4 is below the market average of 1.7, which could explain the low volatility of the shares. It is reckoned to be less volatile than the market.

On balance, ARA Asset Management ticks many of the boxes that could make it a stock that Warren Buffett would want to look at more closely.

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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.