Is Noble Group Limited Too Cheap To Ignore Now?

Editor’s Note: The total return calculation for Noble Group Limited was inaccurately presented as -13% earlier. The difference stems from a capital restructuring by Noble Group back in June 2004 which was not accounted for by our data provider. The recalculated value has been verified and confirmed by multiple data providers. We would like to apologize to Noble Group and any investor whom were distressed by our first article.

Someone who had invested in Noble Group Limited (SGX: N21) when it listed in 1997 and held on till the end of 2015, would and held on till yesterday, he would be sitting on a total loss of 13%, even after accounting for reinvested dividends. be sitting on a total gain of 11.5%, after accounting for reinvested dividends.

For those unfamiliar with Noble Group, of late, the company has had its share price battered to multi-year lows; yesterday, Noble Group’s shares closed at S$0.28, a price that was seen only during 2000 and before. For perspective, Noble Group’s shares closed at S$2.31 nearly five years ago in January 2011 – it has been a long fall from grace.

With so much pessimism surrounding the company at the moment, can Noble Group be too cheap to ignore?

On one hand

If we look at Noble Group’s income statements over the years, it appears that the company could be one huge bargain. As a global distributor of commodities, the company has averaged earnings per share (EPS) of about US$0.05 from 2000 to 2014. At Noble Group’s closing price of S$0.28 yesterday, the company is trading at just 4 times its average EPS over the past 15 years.

If we take the commodity trader’s peak EPS of US$0.116 in 2008 as a sign of where the company could return to, it is only trading at less than 2 times its 2008 earnings at a price of S$0.28. What more can an investor ask for?

On the other hand

But that is not the end of the story. If we look at the firm’s cash flow statements, a different picture surfaces. The free cash flow history of Noble Group has been choppy; there were even times when the company recorded negative operating cash flow.

As an investor, I would much prefer a company that can generate positive free cash flow over the long-term, as that is an indication that the company is creating more returns than it is spending on capital expenditures.

Yet, according to S&P Capital IQ, the sum of all the unlevered free cash flow that has been generated by Noble Group from 1994 to 2014 was a negative US$2.0 billion. In other words, the company has actually spent US$2.0 billion more than it has generated over that 21 year period.

So, we’ve just seen Noble Group’s long-term earnings and cash flow track records. With the information, would you consider the company as leaning towards being a cheap bargain or a value trap? Share your views with us 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 Stanley Lim does not own shares in any companies mentioned above.