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ValueMax Group Ltd’s Stock Price Is Near A 52-Week Low Now: Is It A Good Business?

ValueMax Group Ltd (SGX: T6I) provides pawn broking and money lending services through its network of 42 outlets in Singapore and Malaysia.

At the current price of S$0.29, the company’s stock is just 3.4% higher than its 52-week low of S$0.28. 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 ValueMax 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.

ValueMax’s ROIC

The table below shows how Valuemax’s ROIC looks like. I had used numbers from 2017.


Source: ValueMax annual report

In 2017, ValueMax generated a ROIC of 12.9%. This means that for every dollar of capital invested in the business, ValueMax earned 12.9 cents in profit. The company’s ROIC of 12.9% is average, based on the ROICs of many other companies I have studied in the past. This suggests that ValueMax has a business of just average quality.

One thing to note here is that ValueMax had significant short-term debt on its balance sheet at the end of 2017 (S$212.4 million). Given the nature of its business (the lending business), it’s more relevant to include such debt when calculating ValueMax’s ROIC. When including the debt, the adjusted ROIC for the company falls to just 5.9%.

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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.