The Motley Fool

Investors Have Made 1,228% on This Stock in 10 Years. Is It a Buy Now?

Valuetronics Holdings Limited (SGX: BN2) is a manufacturing company that produces a range of electronic products including smart lighting, printers, and sensing devices. The company has a remarkable record of growing earnings and dividends. 

Between 2008 to 2019, the Hong Kong-headquartered company’s earnings per share increased from 23.2 HK cents to 46.2 HK cents.

Its share price has likewise skyrocketed since then and is now more than triple its price back in 2008. On top of that, the company has been paying out a growing dividend over the past 10 years.

In total, investors who had purchased shares back in 2008 for S$0.21 per share would have collected 190 HK cents in dividends and enjoyed S$0.42 in capital appreciation. Collectively, this works out to a return of S$0.76 per share. That translates to a mouth-watering 360% return in just under 11 years.

Mind you, that was before the great financial crisis. 

Investors who were savvy enough to pick up shares in 2009, when shares of the manufacturing company fell to S$0.07 each, would have earned 169 HK cents in dividends and S$0.56 in capital appreciation.

Those earnings would be based on an initial outlay of just S$0.07 per share, which translates to a staggering 1,228% return in just 10 years.

That just goes to show that investing in a company that pays a regular dividend and has the ability to increase its earnings can be hugely rewarding over the long term.

Can it mirror its past?

However, can present-day investors expect similar returns going forward?

To find out, I compared the company’s 2008 valuation with its current share price. In 2008, Valuetronic shares traded at around 5.1 times its earnings. Today, Valuetronics shares trade at around seven times its trailing earnings.

On the surface, it seems that investors who pick up shares today will be hard-pressed to earn similar returns as investors who picked up shares in 2008.

On top of that, Valuetronic is also facing headwinds as the trade war has affected its business with its American customers. In the quarter ended 30 June 2019, Valuetronics’ management highlighted that around half of its revenue from products shipped to the United States faced a 25% tariff charge.

As such, it is entirely possible that over the longer term, some of its customers may change suppliers to reduce their costs.

As such, investors who are looking for similar returns to those who invested in 2008 may be left wanting. That said, I believe Valuetronics can still deliver market-beating returns over the long term.

The long-term future looks rosy

Despite the near-term headwinds, Valuetronics has taken steps to grow and diversify its business. The company has already leased a site in Vietnam for a production facility in Vietnam that began mass production in June.

It also intends to purchase a plot of land in Vietnam to build its own manufacturing campus. This should curtail some of the affects of the ongoing trade conflict between China and the US.

Furthermore, Valuetronics has a great track record of navigating the challenges that have come its way. The group’s ability to maintain a profit and double its earnings over the last 10 years a is testament to that.

In addition, around 25% of the group’s outstanding shares are owned by executives. As such investors can sleep well knowing that management’s interests are aligned with those of shareholders.

Most importantly, the company’s shares are still relatively cheap.

The price-to-earnings multiple of seven, though above its 2008 level, is low for a company that has seen a steady increase in profit over the years. The group also pays out a decent dividend, which, based on current share prices, translates to a trailing yield of around 7%.

The Foolish bottom line

While investors should not expect returns to match up to yesteryear’s, Valuetronics can still deliver market-beating returns based on its current share price and management’s long-running track record of navigating the company expertly.

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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 Jeremy Chia doesn’t own shares in any companies mentioned.