I’m a value investor. So, I like to search for companies that are trading at good value. A list of stocks that are near their respective 52-week lows is a good place to start my search for a good reason. These are the stocks that are either neglected or beaten down by investors. And, some of these stocks can be bargains in relation to their actual economic worth because market participants can at times react too negatively to certain companies that have sound long-term prospects but have experienced some short-term stumbles. As such, I will screen for stocks that are…
I’m a value investor. So, I like to search for companies that are trading at good value. A list of stocks that are near their respective 52-week lows is a good place to start my search for a good reason.
These are the stocks that are either neglected or beaten down by investors. And, some of these stocks can be bargains in relation to their actual economic worth because market participants can at times react too negatively to certain companies that have sound long-term prospects but have experienced some short-term stumbles.
As such, I will screen for stocks that are trading near 52-week lows nearly once every week. There are many stocks that pop up on my screen each time I run it. In here, let’s look at three such stocks: Riverstone Holdings Limited (SGX: AP4), Top Glove (SGX: BVA)(KLSE: 7113.KL), and Procurri Corporation Ltd (SGX: BVQ).
Source: SGX Stock Facts; Yahoo Finance; data as of 3 April 2017
A Malaysia-based rubber gloves maker, Riverstone manufactures gloves that are used for either cleanroom or healthcare purposes. The company has a focus on customised, higher-margin gloves; this is different from many of its other industry peers as they focus mainly on standardised glove products.
In 2016, Riverstone grew its revenue by 16.9%. But, its net profit slipped by 4.8% as a result of increases in raw material costs, labour costs, and more. Still, the company managed to generate strong operating cash flow of RM 119 million in 2016. Its balance sheet also remained healthy with RM 103.2 million in cash and zero debt.
Looking ahead, Riverstone has started construction of a new factory. When completed, it can potentially increase the company’s production capacity by another 1 billion gloves. As of 31 December 2016, Riverstone can produce 6.2 billion gloves per year.
Although the company is pressing ahead with expanding its business, it also warned that “the hike in raw material prices, increase in overall production costs and competition from the other glove manufacturers remain challenging.”
Top Glove is similar to Riverstone in the sense that it is also a Malaysia-based rubber gloves manufacturer. But, Top Glove is way larger than Riverstone – in fact, Top Glove is the largest gloves maker in the world with a market share of around 25%.
The company has been listed on Bursa Malaysia, Malaysia’ stock exchange, since 2001. In the middle of 2016, Top Glove listed in Singapore by way of introduction.
From its FY2006 (fiscal year ended 31 August 2006) to FY2016, Top Glove’s revenue and profit have grown at compound annual rates of 11.3% and 16.5%, respectively. That’s a strong track record. But, the company’s latest earnings – for the six months ended 28 February 2017 – saw Top Glove post a 33% year-on-year decline in profit despite a 9.6% jump in revenue.
In its earnings release, Top Glove commented that “the global demand for gloves is expected to continue growing by 6% to 8% every year.” The company will be ramping up its production capacity to meet that demand. Top Glove expects to have annual production capacity of 60 billion gloves by December 2018, up from 48 billion as of March 2017.
Lastly, we have Procurri, a provider of data center equipment and lifecycle services. The company was listed in July 2016 after being spun-off from Declout Ltd (SGX: 5UZ). The latter currently owns 47% of the former.
Procurri’s latest results was released in late February. For the whole of 2016, the company experienced a 10.5% increase in revenue, but a 39.3% fall in net profit attributable to shareholders. Its operating cash flow also decreased from a positive S$4.96 million in 2015 to a negative S$624,000 in 2016.
Commenting on its future prospects, Procurri said that it is maintaining a “cautious outlook” due to the “challenging market conditions exacerbated by geopolitical tension.”
Investors should note that Procurri is a company with a small market capitalisation of just S$98 million. As part of the research process when dealing with small cap companies, investors should take into consideration situations that are particularly relevant to such companies, such as low trading liquidity, less stable profit, and less coverage by analysts.
A Foolish conclusion
It’s worth noting that not every company with a stock price near a 52-week low is a legitimate bargain. A declining stock price can decline yet further if the underlying business performance continues to weaken.
Nothing we’ve seen here about Riverstone, Top Glove, and Procurri should be taken as the final word on their investing merits. The information presented in this piece should be viewed only as a useful starting point 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. The Motley Fool Singapore has recommended shares of Riverstone. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.