Venture Corporation Ltd (SGX: V03) is an electronics manufacturing services provider with expertise in a wide range of activities.
In the last few months, investors have become worried about companies with exposure to the semiconductor industry. As a result, these companies saw significant declines in their share prices. Venture Corporation was not spared either. At yesterday’s share price of S$18.33, the company’s stock is trading at 38% below its 52-week high of S$29.65.
Many might point out that such decline might be warranted as a result of higher uncertainties in the global economy caused by issues like trade wars. Yet, despite all the negative sentiments, there are a number of things to like about company.
In my previous article here, I looked at three of those, which are:
1. Strong track record;
2. Positive earnings update; and
3. Strong cash flow generation.
In this article, I will look at the fourth reasons to like the company.
Strong balance sheet
A company must be able to withstand the ups and downs in the business cycle in order to continue to operate and grow over a long period of time. This is especially true for Venture as some part of its business are cyclical in nature.
To do so, it must have a strong balance sheet so that it can 1) satisfy its existing operational and financial requirements (including paying out dividends); and 2) invest in future growth. Generally speaking, a company with a strong balance sheet will have plenty of cash in its bank and a reasonable debt-to-equity ratio (not more than 100%).
With that, let’s consider the numbers for Venture.
As at 30 June 2018, the company had S$688.6 million in cash on the balance sheet and S$41.7 million loan. This gives it a net cash position of S$646.9 million.
Venture’s strong balance sheet should give it significant cushion to withstand short-term challenges and also the resources to invest for future growth.
The Foolish conclusion
Mr Market is not particularly fond of Venture for now. However, there are reasons to believe that the company is not that bad after all. Investors should not neglect the four positive points about the company when doing their research on it.
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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.