After a few months of the stock market declining, I had recently decided to run a screen on all the companies listed in Singapore to see if I can spot a bargain. What I wanted to first find are companies with a solid track record of business growth over the past decade. To do so, my screen included the following criteria: Revenue growth of at least 10% per year for the past 10 years Net income growth of at least 10% per year for the past 10 years Annual dividend per share growth of at least 10% for the past…
After a few months of the stock market declining, I had recently decided to run a screen on all the companies listed in Singapore to see if I can spot a bargain.
What I wanted to first find are companies with a solid track record of business growth over the past decade. To do so, my screen included the following criteria:
- Revenue growth of at least 10% per year for the past 10 years
- Net income growth of at least 10% per year for the past 10 years
- Annual dividend per share growth of at least 10% for the past 10 years
- An annual increase in earnings per share of at least 10% for the past 10 years
- A total debt to equity ratio of below 100% currently
The idea behind my screen is to sift out companies that have been able to grow and yet are currently financially strong.
Long live the King
One of the companies that managed to filter through was Kingsmen Creatives Ltd (SGX: 5MZ). The company, which has a market capitalization of around S$140 million, is in the business of fitting out retail stores, commercial offices, theme parks, museums and various types of exhibitions.
To show you just why Kingsmen had appeared on my screen, the following are some stats on the company’s business performance from 2005 to 2014 that was captured by my criteria:
- Growth in revenue from S$76.7 million in 2005 to S$336.4 million in 2014
- Nearly eight-fold jump in profit over the same period from SS$2.2 million to S$17.2 million
- A strong balance sheet with zero debt and S$68 million in cash as of 30 September 2015
But, what was not captured in my screening critera was the financial performance of the company in 2015 thus far. In the first nine months of the year, Kingsmen Creatives had seen its earnings collapse by more than half from a year ago to just S$4.4 million The company’s interim dividend in the first-half of 2015 was also slashed by 33% to just S$0.01 per share.
These bleak numbers are likely the cause of Kingsmen Creatives’ 25% decline in share price to S$0.70 since the start of 2015.
Beware of what you screen for
Interestingly, if I were to include Kingsmen Creatives’ financial results for 2015 in my screening process, it should be unable to pass my various tests. The choice of the cut-off dates for my screen turned out to be key in determining which companies would have emerged.
This highlights an important a risk we have to take note of whenever we are using investing screens to generate ideas: Some screening software may be using a company’s past performance data which does not include the most recent batches. That’s why an investing screen should only be the starting point of your investment analysis. You should never rely on screens to make investment decisions without performing deeper research into a company.
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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 Stanley Lim doesn’t own shares in any companies mentioned.