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Boustead Singapore Limited Is Trading Close To Its 52 Weeks-Low Price: Is It A Good Business?

Boustead Singapore Limited (SGX: F9D) was established in 1828 and is one of the oldest companies in Singapore’s stock market. The company is a conglomerate with four key divisions: Energy-Related Engineering (oil and gas and wastewater treatment); Real-Estate Solutions; Geo-Spatial technology; and Healthcare. The Real-Estate Solutions division is separately listed under Boustead Projects Ltd (SGX: AVM).

At the current price of S$0.80 (at time of writing), the company’s stock is trading at just four cents higher than its 52-week low of S$0.76. This captured my attention and got me interested in finding out more about the company. In particular, I wanted to understand: Does it have a high-quality business?

This question is important. If Boustead Singapore has a high-quality business, its current low stock price could be an investment opportunity. Unfortunately, there’s no easy answer to the question. But, a simple metric can help shed some light on the question: the return on invested capital (ROIC).

A brief introduction to ROIC

In a previous article of mine, I explained how ROIC can be used to evaluate the quality of a business.

The simple idea behind ROIC is that a business with a higher ROIC requires less capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business. High-quality businesses tend to have high ROICs while the reverse is true – a low ROIC is often associated with a low-quality business.

You can see how the math works for the ROIC in the formula above.

Boustead Singapore’s ROIC

The table below shows how Boustead Singapore’s ROIC looks like. I had used numbers from its fiscal year ended 31 March 2018 (FY2018).

Source: Boustead Singapore’s Annual Report

In FY2018, Boustead Singapore generated a ROIC of 27.7%. This means that for every dollar of capital invested in the business, Boustead Singapore earned 27.7 cents in profit. The company’s ROIC of 27.7% is above average, based on the ROICs of many other companies I have studied in the past. This suggests that Boustead Singapore has a high-quality business. 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Boustead Singapore and Boustead Projects. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.