Growth stocks can help investors fast-track their investment returns. However, picking the right business can often be tough.
Last week, we suggested two key criteria which can help investors identify a good growth company: revenue growth and return on equity. Today, I would like to put some numbers behind the criteria to help us unearth a good growth company:
1) 5-year revenue growth of greater than 10%
2) Return on equity (ROE) greater than 10%
3) A market capitalization of over a billion dollars
With these parameters in mind, let’s look at one company which fits the bill.
Venture Corporation Ltd (SGX: V03) was founded in 1984 as a global electronics provider. Today, the company is a global provider of technology solutions, products and services. Venture currently has a market capitalization of S$4.7 billion, meeting our first criteria.
Over the past five years, Venture’s revenue has grown from S$2.33 billion in 2013 to S$4.0 billion in 2017 or growth rate of 14.5% per year. With such a strong revenue growth rate, it should come as no surprise that Venture easily meets our second criteria for a growth stock.
Source: Morningstar; in SGD Millions
Having a strong revenue growth rate alone, however, doesn’t give investors a complete picture.
We would also prefer to see the company maintain a strong return on equity. For Venture, we can see from the table below that its ROE has ranged between 7.91% and 18.07% over the past five years. The good thing is that we see a rising trend in Venture’s ROE. This trait is important as it shows that the management of the company is consistently improving its returns.
In summary, Venture’s revenue growth and rising ROE suggests that the company’s management could be well positioned to re-invest profits to drive business growth. The data on Venture above should give investors motivation to look at the company with a keener eye to see if it’s a good investment.
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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own any of the shares mentioned.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.