At the moment, there are only two rubber glove manufacturing companies in Singapore?s stock market, namely, Riverstone Holdings Limited (SGX: AP4) and UG Healthcare Corporation Ltd (SGX: 41A).
Riverstone?s the older name in the market, having been listed in 2006. UG Healthcare, meanwhile, was listed only in December 2014. Since then, both Riverstone and UG Healthcare have delivered solid returns that are way in excess of that of Singapore?s market barometer, the Straits Times Index (SGX: ^STI). You can see this in the table below:
Riverstone’s the older name in the market, having been listed in 2006. UG Healthcare, meanwhile, was listed only in December 2014. Since then, both Riverstone and UG Healthcare have delivered solid returns that are way in excess of that of Singapore’s market barometer, the Straits Times Index (SGX: ^STI). You can see this in the table below:
But while both Riverstone and UG Healthcare have been strong market-beaters, the former’s much higher return might cause the individual investor to ask: Which is the better long-term investment now?
The answer would ultimately depend on the strength of the two companies’ business fundamentals. So, let’s take a look at some important aspects of their businesses that can give us clues on how good they are.
In here, I’m concerned with the balance sheets of both Riverstone and UG Healthcare. A weak balance sheet that’s burdened with excessive debt increases the risk that a company can cause distress for its shareholders, especially when the business environment turns south.
During tough times, if a company finds it hard to service or repay its loans, then shareholders may have to face terrible consequences such as a dilution of their stakes in the company, involuntary asset sales by the firm, a complete elimination of dividends, or in the worst-case-scenario, the company’s bankruptcy.
On the other hand, a strong balance sheet – one that is flush with cash and with little debt – gives a company higher odds of tiding over rough times. Moreover, a solid balance sheet can even allow a firm to go on the offensive in a weak business climate and gain competitive advantages over financially weaker competitors.
As shown in the table above, Riverstone has the superior balance sheet as it has more cash than debt, unlike UG Healthcare.
The past is not a perfect indicator of the future, but it’s still useful as a guideline for thinking about what lies ahead. This is where the track record of Riverstone and UG Healthcare comes into play.
What I’m interested in here is how fast the two companies have managed to grow their revenue, profit, and operating cash flow. Generally speaking, these metrics are good indicators of whether a company’s building or destroying value for its shareholders.
From the table just above, we can see that Riverstone has come out tops again with its much stronger historical growth rates.
Even the best business can become a lousy investment if bought at too high a price. That’s why it’s important for investors to watch a company’s valuations. For a manufacturing company, the price-to-earnings (PE) and price-to-sales (PS) ratios are popular and useful metrics for gauging how cheap or dear its stock is.
With its cheaper valuations as illustrated in the table above, UG Healthcare has the advantage over Riverstone in this area.
A Fool’s take
In a final tally, Riverstone’s the ultimate winner with its stronger balance sheet and faster historical growth. But all that being said, it’s worth noting that what we’ve seen should not be taken as the final word on the investing merits of the two glove makers. They merely serve as useful starting points for further research.
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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 doesn't own shares in any companies mentioned.