Growth investors are investors who aim to invest in companies that are able to grow their businesses at high rates in the future.
In this article, I will like to point out two reasons why growth investors may find local supermarket operator Sheng Siong Group Ltd (SGX: OV8) an interesting candidate for further research.
Historical growth rates
Growth investors tend to be interested in companies that possess a good historical track record of growth, and the potential to continue posting a high growth rate in the future.
In the case of Sheng Siong, it has demonstrated a positive track record. From 2013 to 2017, its revenue has increased by 4.8% annually from S$687.4 million to S$829.9 million. The company’s top-line did not grow at a particularly fast rate, but its bottom-line did much better. Over the same period, Sheng Siong’s net profit had jumped by 15.6% per year from S$38.9 million to S$69.5 million.
As for Sheng Siong’s potential for future growth, this is a much harder trait to gauge. But, the idea here is that a company with a proven track record stands a better chance of being able to continue growing in the years ahead, keeping in mind the key idea that past performance is no guarantee of future results.
Balance sheet strength
A growth company must also be able to withstand the ups and downs in economic conditions or the business cycle in order to give itself the requisite time to actually grow. And in order to have the robustness to endure the bad times, the company must have a strong balance sheet so that it can (a), satisfy the financial requirements of its operational needs, and (b) invest in future growth.
Generally speaking, a company with a strong balance sheet will have plenty of cash, and a reasonable debt to equity ratio (a ratio of less than 100%).
Coming to Sheng Siong, its balance sheet had S$73.4 million in cash and investments, and zero debt, as of 31 December 2017. So, it’s clear that the supermarket operator has a solid balance sheet.
A Foolish conclusion
From all the data above, we can see that Sheng Siong has a strong track record of growth, and a robust balance sheet.
Though these traits are positive, investors should also consider the other side of the equation. Stay tuned for more in the coming days, as I’ll be sharing the negative traits of Sheng Siong from the perspective of a growth investor. [Editor’s note: An article discussing the negative traits of Sheng Siong has been published. It can be found here.]
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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.