Investing for retirement is one of the most important financial objectives that investors have. While do-it-yourself investors are more open to including stocks in their portfolio today (as opposed to the traditional approach of saving in fixed deposits), they will still have to decide on what stocks to include and to hold until retirement and beyond.
Now, selecting individual stocks is not an easy thing to do since investors will have to consider many facets of a company before making an informed decision on whether to buy.
With that in mind, we will try to assess whether Sheng Siong Group Ltd (SGX: OV8) could be a good candidate to consider for your retirement portfolio.
Is it a stable and sustainable business?
The very first question that I’ll ask before considering any stock for my retirement portfolio is whether the company has a stable and sustainable underlying business.
The reason is simple. A stable business will allow the company to sustain, or even better, grow its profitability over time. This will then sustain or grow both its share price and dividend payments.
There are many ways to assess whether a business is stable or not. One of them is to look at the company’s historical performance. Here, a company that has a proven track record of stable and growing performance in the past has better chances of continuing that performance in the future. So how did Sheng Siong performed on this front? Let’s look at Sheng Siong’s performance track record for the past decade.
To start with, revenue grew from S$625.3 million in 2009 to S$890.9 million in 2018, increasing by a compounded annual growth rate (CAGR) of 4.0% during the period. Gross profit performed even better, up from S$128.4 million in 2009 to S$238.4 million in 2018. This translates into a CAGR of 7.1% for the decade. Consequently, net profit has grown from S$33.6 million in 2009 to S$70.5 million in 2018, up by a CAGR of 8.6% during the period.
From the above, we can see that not only did Sheng Siong grow its revenue over time but it also grew its bottom-line even more, mainly through margin expansion. Thus, I think that there’s a high probability that Sheng Siong can sustain its performance going forward, especially considering that it’s providing an important daily service to Singaporeans as a supermarket.
Buying and holding high-quality stocks is one of the most effective methods for any investor to build a solid retirement portfolio.
From the above, we can see that Sheng Siong meets our first criteria of stability and sustainability. But there are other factors to consider, which I’ll cover in future articles. Stay tuned.
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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. The Motley Fool Singapore has recommended shares of Sheng Siong Group Ltd.