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Finding the Perfect Investment

When it comes to building a great – or even the perfect – business, Jeff Bezos would be someone to turn to for answers. Just check out the share price chart of Amazon Inc, the online retail giant he founded and still leads, since its initial public offering (IPO) in 1997:

Amazon share price chart

Source: S&P Capital IQ (click for larger image)

In Amazon’s latest 2014 annual shareholder’s letter, Bezos wrote about his definition of a “dreamy” business:

“A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time – with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.”

So, in Bezos’ eyes, there are four elements that when combined, leads to the perfect business, and by extension, the perfect investments (provided the price is right, of course!). They are (1) a business with strong consumer appeal, (2) a huge runway for growth, (3) ability to earn great returns from the capital invested, and (4) able to last the yard.

I think that’s a wonderful filter to apply when it comes to finding great investing opportunities and when it comes to Singapore’s stock market, there’s one company that I think fits the bill: Healthcare services provider Raffles Medical Group Ltd (SGX: R01).

As a brief introduction, the company’s current flagship is Raffles Hospital, a private hospital providing tertiary care that’s located along North Bridge Road in Singapore. The company also has clinics and medical centres in Singapore and beyond, in areas like China, Hong Kong, Japan and more.

Here’s why I think Raffles Medical could possibly be the type of dreamy business that Bezos is describing:

1) Strong consumer appeal

While no one actually would love going to the doctor’s, Raffles Medical does seem to have built a significant brand. For instance, the company managed to snag the Gold award in 2012 in the Reader’s Digest Most Trusted Brands survey for the private hospital category.

2) Huge runway for growth

According to the United Nations’ 2015 version of its World Population Prospects report, the population within Asia is expected to jump by 20% from today to 5.27 billion in 2050; meanwhile, the percentage of the elderly (those aged 60 and above) is predicted to increase from 12% in 2015 to 25% by 2050. These population trends can be great tailwinds for the Asia-focused Raffles Medical.

Then, there’s also the fact that healthcare-spending in Singapore is in the billions; this is clearly way larger than Raffles Medical’s current annual revenue of ‘just’ S$396 million.

3) Ability to earn great returns on capital invested

Raffles Medical has generated an average return on equity of 15.6% over the decade ended 2014 and it has managed to do so with a great balance sheet. To the latter point, 2007 was the only year in the aforementioned decade in which Raffles Medical had more debt than cash on its balance sheet.

4) Able to last the yard

There’s a saying which goes: “The only thing certain in life is death and taxes.” I’d humbly submit that there are actually four things which are certain: Death, taxes illnesses and accidents. People fall ill and get injured all the time. And when that happens, healthcare providers will be required.

A Fool’s take

Raffles Medical may have the characteristics of a great business (in my view, at least), but that does not necessarily mean it’d be a great investment. That’s because the price to pay to own the business is something that we have yet to consider.

I think that’s enough of Raffles Medical for now. Do you have any company in mind that you think may clear the tough hurdles set by Bezos? Let me know in the comments section below!

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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 Amazon and Raffles Medical Group.