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Riverstone Holdings Limited’s Stock Is Up 320% In The Last 5 Years: Does It Have A Good Business?

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Riverstone Holdings Limited (SGX: AP4) is a Malaysia-based manufacturer of rubber gloves that are used in the cleanroom and healthcare industries.

At its current price of S$1.04, Riverstone’s stock is up by 320% over the past five years, which is an outstanding performance. This captured my attention and got me interested in finding out more about the company. In particular, I want to understand: Does it have a high quality business?

This question is important. If Riverstone has a high quality business, its stock could continue performing well over the long-term. Unfortunately, there’s no easy answer to the question. But, a simple metric can help shed some light on the question: The return on invested capital (ROIC).

A brief introduction to the ROIC

In a previous article of mine, I explained how the ROIC can be used to evaluate the quality of a business.

The simple idea behind the ROIC is that a business with a higher ROIC requires less capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business. High-quality businesses tend to have high ROICs while the reverse is true – a low ROIC is often associated with a low-quality business.

You can see how the math works for the ROIC in the formula above.

Riverstone’s ROIC

Here’s a table showing how Riverstone’s ROIC looks like (I had used numbers from its fiscal year ended 31 December 2016):


Source: Riverstone 2016 annual report

In 2016, Riverstone generated a ROIC of 29.9%. This means that for every dollar of capital invested in the business, Riverstone earned 29.9 cents in profit. The company’s ROIC of 29.9% is above average, based on the ROICs of many other companies I have studied in the past. This suggests that Riverstone has a high quality business.

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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. The Motley Fool Singapore has a recommendation for Riverstone Holdings Limited.