Growth stocks should be part of every investors portfolio. However, finding the right companies can often be an uphill task.
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.
Oxley Holdings Ltd (SGX: 5UX) is a home-grown Singapore property developer. The construction firm deals in property development and property investment. Oxley has a diversified portfolio of development and investment projects and properties across twelve geographical markets. At its current share price, Oxley has a market capitalisation of S$1.25 billion — as such, it meets our market cap criteria.
Over the past five years, Oxley’s revenue has increased S$458 million in 2013 to S$1.34 billion in 2017 as shown in the table below, resulting in a growth rate of almost 31% per year. Despite the strong growth rate, the lumpiness of revenue can be clearly seen in the table. Volatile revenue is quite common for property developers, as they can only recognise profits as the property is completed. The strong revenue growth rate seen by Oxley meets our growth criteria.
Source: Morningstar; in SGD Millions
Apart from having strong revenue growth, we are also looking for a consistent ROE. Let’s look at how Oxley fared on this front.
As seen from the table below, Oxley’s ROE has comfortably been above our 10% limit. Oxley has had an ROE of greater than 23% in four out of the past five years; Its ROE has ranged between 13.8% and 88.3%. The wide difference in ROE from year to year is mostly due to its lumpy earnings.
In summary, Oxley’s strong revenue growth and solid ROE should serve as a good starting point for investors to dig deeper into its financials.
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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.