Vibrant Group Ltd’s Stock Is Trading Near A 52-Week Low: Does The Company Have A Quality Business?

Vibrant Group Ltd (SGX: BIP) can be seen as a conglomerate, given that it provides integrated logistics, real estate, and financial services.

At the current price of S\$0.355, Vibrant Group’s stock is around 11% higher than a 52-week low of S\$0.32. 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 Vibrant Group has a high quality business, its current low stock price could be an investment opportunity. 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.

Vibrant Group’s ROIC

Here’s a table showing how Vibrant Group’s ROIC looks like (I had used numbers from its fiscal year ended 30 April 2017):

Source: Vibrant Group earnings update

In its fiscal year ended 30 April 2017 (FY2017), Vibrant Group generated a ROIC of 8%. This means that for every dollar of capital invested in the business, Vibrant Group earned 8 cents in profit. The company’s ROIC of 8% is below average, based on the ROICs of many other companies I have studied in the past. This suggests that Vibrant Group has a low-quality business.

Moreover, Vibrant Group employed S\$130.24 million in short-term debt in its capital structure as of 30 April 2017. This short-term debt is not included in my calculation above for the tangible capital employed. It might be useful to include that figure to give us an adjusted tangible capital employed of S\$641 million. This would then give Vibrant Group an adjusted ROIC of 6%.

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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.