One of many investment strategies that have worked well over time is to be a contrarian, which essentially means to be an investor who’s not following the herd. In other words, being a contrarian means buying (selling) stocks that others shy away from (are clamoring for).
In this article, I want to share a potential contrarian investing opportunity, namely, Bumitama Agri Ltd (SGX: P8Z). Since hitting a high of S$1.23 four years ago in 2014, Bumitama Agri’s share price has fallen by about 45% to S$0.68 currently. In fact, the company’s share price is down by around 14% over the past year too.
I think there are many good reasons for investors to considering investing in the company now. Let’s walk through two. [Editor’s note: An article sharing two more reasons has been published. It can be found here.]
As a quick introduction, Bumitama Agri is a palm oil producer. The company has over 180,000 hectares of plantation land located in three provinces in Indonesia, namely, Central Kalimantan, West Kalimantan, and Riau.
Reason 1: Track record of growth
Investors make money from stocks in two ways: From an increase in a company’s share price, and from its dividend payments. Both factors, in turn, are driven by how well a company can grow its profits over the long run.
The idea is simple: A company that has a good track record has a higher probability of growing its profit in the future. What’s a good track record then? For me, it is one where a company has either stable or growing profits over a period of at least five years.
In the case of Bumitama Agri, the company fits the bill. From 2013 to 2017, revenue doubled from IDR 4,063 billion to IDR 8,131 billion, translating to a compound annual growth rate of 18.9%. Meanwhile, net profit was up 9.7% per year from IDR 982 billion to IDR 1,424 billion.
Reason 2: Strong recent quarterly earnings update
Bumitama Agri delivered a strong performance in its latest earnings update, which was for 2018’s second quarter. The palm oil producer reported that its revenue for the quarter improved by 22.4% year-on-year to IDR 2,349 billion. Similarly, gross profit climbed 35.6% to IDR 762 billion, which consequently led to a strong 36.1% increase to IDR 388 billion in profit attributable to shareholders.
The company’s growth was driven by higher fresh fruit bunches production that offset weaker selling prices.
Wrapping it up
In sum, Bumitama Agri’s share price performance is not reflective of its historical track record and latest earnings performance. Though market sentiment on the company is anything but positive for now, enterprising investors in the company may see positive investment outcomes going forward, as long as the company can continue to deliver good financial results.
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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.