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3 Simple Charts Investors Should See About Noble Group Limited’s Business

Commodities trader Noble Group Limited (SGX: CGP) has captured plenty of attention from investors of late because of its stunning collapse. Over the past 30 days, the company has seen its stock price fall by 88% to S$0.355.

This big drop may cause investors to wonder if there’s any long-term value in Noble Group’s shares to exploit right now. It’s a tough question to answer, but important clues can be found in the company’s business fundamentals. Over the long-term, a company’s stock price is governed by the performance of its business.

Generally, a company would be known as having strong business fundamentals if it has most or all of the following traits:

1) Growing revenue;

2) Net income, operating cash flow, and free cash flow that are consistently positive and growing;

3) A strong balance sheet (one with minimal debt) and a high return on equity.

Of course, the criteria above does not apply to every long-term stock market winner. But, it’s still a good place to start. So, does Noble Group have the traits above? Let’s see.

The chart just below, Chart 1, shows Noble Group’s revenue from 2006 to 2016. As you can observe, the company was doing a fine job of growing its revenue until 2014, when its top-line subsequently fell sharply. For some perspective, Noble Group’s revenue in 2016 was 46% lower than in 2014.

Source: S&P Global Market Intelligence

Chart 2, which you can find below, plots Noble Group’s net income, operating cash flow, and free cash flow for the same period as Chart 1. It’s clear that the company has a very poor record in terms of generating positive net income, operating cash flow, and free cash flow over the past decade.

Source: S&P Global Market Intelligence

As for Noble Group’s balance sheet and returns on equity from 2006 to 2016, we can turn to Chart 3. It shows the company’s net-debt to shareholders’ equity ratio and returns on equity. And again, the company has turned in a poor performance here given (a) its consistently high net-debt to shareholders’ equity ratio, and (b) its falling and low returns on equity. To the latter point, Noble Group’s return on equity was just 4.2% in 2014 and negative in both 2015 and 2016.

Source: S&P Global Market Intelligence

Given what the three charts above have shown us, it’s clear that Noble Group has really lousy business fundamentals. This does not mean that the company is destined to be a poor long-term investment going forward. But, it does mean that Noble Group is a very risky investment and investors should probably stay away, or at the very least, walk in with their eyes wide open to the dangers involved.

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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.