MENU

Raffles Medical Group Ltd’s Stock Is Trading Close To Its 5-Year Low: Is It A Good Business?

Raffles Medical Group Ltd (SGX: BSL) runs hospital and healthcare services in Singapore. It also has a network of clinics in five countries and thirteen cities. Also, it has two hospitals under development in China.

At a share price of S$1.07 (at the time of writing), the company’s stock is trading close to its five-year low of S$0.98. This captured my attention and got me interested in finding out more about the company. In particular, I wanted to understand: Does Raffles Medical have a high-quality business?

This question is important. If Raffles Medical 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.

Raffles Medical’s ROIC

The table below shows how Raffles Medical’s ROIC looks like. I had used numbers from its fiscal year ended 31 December 2017 (FY2017).

Source: Raffles Medical’s Annual Report

In FY2017, Raffles Medical generated a ROIC of 12%. This means that for every dollar of capital invested in the business, Raffles Medical earned 12 cents in profit. The company’s ROIC of 12% is average, based on the ROICs of many other companies I have studied in the past. This could suggest that Raffles Medical has an average quality business.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.

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. Motley Fool has a recommendation from Raffles Medical Group Ltd.