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

Kimly Ltd (SGX: 1D0) is the largest traditional coffee shop operator in Singapore. At the current price of S$0.33, the company’s stock is trading at just a whisker away from its 52-week low price of S$0.325. This captured my attention and got me interested in finding out more about the company. In particular, I wanted to understand: Does Kimly have a high quality business?

This question is important. If Kimly 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, and that is the return on invested capital (ROIC).

A brief introduction to the ROIC

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

The simple idea behind 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 also true – a low ROIC is often associated with a low-quality business.

Kimly’s ROIC

The table below shows how Kimly’s ROIC looks like. I had used numbers from its fiscal year ended 30 September 2017 (FY2017).

Source: Kimly’s Annual Report

In FY2017, Kimly generated a ROIC of -220%, which is an unusual number. Putting it into perspective, Kimly is funding its business using payables. In this case, the payables of S$20.6 million has covered all the tangible capital requirement of the business.

In sum, I think Kimly is a good business given its unique business model that allows it to generate returns from “other people’s money”.

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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.