The Motley Fool

2 Solid Reasons This Small Cap Might Be a Winner in the Long Run

Riverstone Holdings Limited (SGX: AP4) is a Malaysia-based company operating in two key areas of the rubber gloves industry: cleanroom gloves and medical gloves.

It recently appeared on my radar as it’s trading close to its 52-week low (regular readers will know I’m a big fan of looking for ideas from the 52-week low list).

After spending time digging a little further, I found a number of good reasons Riverstone might be a worthwhile candidate for further consideration. Let’s look at two of those reasons.

Strong industry tailwind

As a glove manufacturer, Riverstone is considered a defensive company since its products are needed in both good and bad times.

Moreover, it operates in an industry with favorable tailwinds, thus positioning it well for future growth. Increasing hygiene standards/regulations, an increase in demand from emerging markets, and new health threats are a few of the key drivers for future growth.

In order to ride the growth tailwind, the glove maker has been investing in new capacity in the last few years, with additional capacity to come in the next few years. In fact, for this year alone, Riverstone’s expansion plan is well underway to add 1.4 billion pieces to amass a total of 10.4 billion pieces by the end of the year (up 15.6%).

Thus, we think Riverstone can continue to grow for the foreseeable future.

Track record of growth

As investors, we are interested in companies that have demonstrated a solid track record of growth since a company with a proven track record of growing its business in the past has a better chance of continuing that performance in the future.

Though past growth is not a guarantee of future performance, we prefer to invest in companies that have such track records. In particular, it’s important that Riverstone have a good track record to give us some assurance that it can capitalise on the industry tailwinds we mentioned above.

The good news is that Riverstone has a solid track record of execution. Let’s consider the following financials.

From 2014 to 2018, Riverstone’s revenue increased from RM399.3 million to RM 921.0 million, up by 130.7% during the period. This translates to a compound average growth rate (CAGR) of 23.2%. Also, net profit has grown from RM 71.0 million in 2014 to RM 129.7 million in 2018, up by a CAGR of 16.3% during the period.

Personally, I think such a track record is solid, which should give us some assurance that the company has been executing well historically.

The Foolish bottom line

Investor sentiment towards Riverstone is not very optimistic. Yet, those who are willing to invest for the longer term might consider putting the company on their watch lists.

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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 Riverstone Holdings Limited.