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What Investors Should Know About Sarine Technologies Ltd’s Historical Business Growth

Growth investors are investors who aim to invest in companies that are able to grow their businesses at high rates in the future.

One way that growth investors try to estimate how well a company’s business may perform in the years ahead is to look at its historical track record. In investing, the past is not a predictor of the future. But, an understanding of history can still help in setting expectations for what could possibly happen.

In general, when growth investors study a company’s past, they are looking out for above-average growth rates (say 10% or more annually) and consistent growth. In here, I want to have a quick analysis of Sarine Technologies Ltd (SGX: U77) from these two perspectives.

Here’s a table showing Sarine Technologies’ revenue, operating profit, and net profit from 2010 to 2015:

Sarine Technologies income table
Source: Sarine Technologies’ annual reports

We can see that Sarine Technologies’ revenue, operating profit, and net profit managed to show consistent growth from 2010 to 2014. The three metrics have also grown at high compound annual rates of 17.7%, 22.9%, and 25.1%, respectively, over that period of time.

Unfortunately, the company’s performance declined significantly in 2015 due to a downturn in the diamond industry. (Sarine Technologies produces technologies and machines that are used to help turn rough diamond stones into polished gems.) The company’s revenue dropped by nearly half and its profit fell off a cliff.

So, based on what we have seen above, Sarine Technologies is in a cyclical business. Although the company can achieve solid and consistent growth over a span of time, history has shown that its business is prone to violent contractions.

What’s more, the company has high fixed-costs, which means that its profitability will swing in bigger ranges than its revenue.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.