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Capital World Ltd’s Stock Is Trading At A 52-Week Low: Is It A Good Business?

Capital World Ltd (SGX: 1D5) is a property developer focusing mainly in developing properties in Malaysia. It was listed in Singapore in 2017.

At the current price of S$0.062, the company’s stock is trading at 0.2 cents above its 52-week low of S$0.06. 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 Capital World 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 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.

Capital World’s ROIC

The table below shows how Capital World’s ROIC looks like. I had used numbers from its fiscal year ended 30 June 2018 (FY2018).

Source: Capital World earnings update

In FY2018, Capital World generated a ROIC of 46%. This means that for every dollar of capital invested in the business, Capital World earned 46 sen in profit. The company’s ROIC of 46% is high and above average, based on the ROICs of many other companies I have studied in the past. This suggests that Capital World 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.