Growth stocks should have a place in every investor’s portfolio. However, finding a good growth stock can be challenging.
Recently, 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.
Top Glove Corporation Bhd (SGX: BVA) is a manufacturer of different types of gloves, including latex, nitrile, vinyl, and surgical. The glove maker’s products are supplied to a diverse group of global customers and are used in an array of end markets such as the aerospace, food, beauty, medical, and home care. The company has a primary listing on Bursa Malaysia and a secondary listing in Singapore. At current prices, Top Glove has a market capitalisation of MYR$14.9 billion.
Between the financial year ended 31 August 2014 (FY2014) and FY2018, Top Glove’s revenue has increased from MYR$2.3 billion to MYR$4.2 billion for a growth rate of 16.7%.
Source: Morningstar; in MYR Millions
Apart from having strong revenue growth, we are also looking for a consistent ROE. Let’s look at how Top Glove fared on this front.
In the case of Top Glove, we can see from the table below that its ROE has consistently been above the 10% limit we have set. This performance is a good sign as it gives investors’ confidence in the management’s ability to re-invest profits and achieve good returns at the same time. In fact, Top Glove’s ROE has been above 13% for the past five fiscal years. In other words, the company is earning 13 cents for every dollar in equity.
In summary, Top Glove’s strong revenue growth and solid ROE should serve as a good starting point for investors to dig deeper into its financials.
Motley Fool Singapore analysts have identified a technology mega-trend we believe investors simply should NOT ignore. Tech revolutions of this magnitude usually come along just once or twice in a lifetime, and the companies at the forefront could make a fortune. Click here now for our comprehensive research report laying out the full story… AND one Asian stock we think is poised to win.
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 has recommended shares of Top Glove. Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.