At any point in time, there will be certain companies whose share prices have fallen due to various reasons. For instance, company-specific events or macroeconomic headwinds could have affected sentiment surrounding the company, hitting the stock price hard in the short term. However, those firms could also have the potential to recover and return to growth over the long run.
Here, let’s take a look at three such Singapore-listed companies that have been beaten down recently but have the ability to do well in the long term.
Company #1: Dairy Farm International Holdings Ltd
Dairy Farm International Holdings Ltd (SGX: D01) is a pan-Asian retail group with operations across many Asian countries and territories. It manages supermarkets, hypermarkets, convenience stores, health and beauty stores, and home furnishings stores under well-known brands such as Cold Storage, 7-Eleven, Guardian, and IKEA. Such stores are seen as recession-proof as people still need to purchase groceries and the like no matter what the economy does.
Since the start of the year, Dairy Farm’s shares have declined by around 23%. One of the main factors that contributed to the fall was lower profitability in 2018 due to business restructuring. For the year, Dairy Farm exited various underperforming stores from its food division in Southeast Asia, among others, causing the company to take a one-off hit of US$453 million.
The business transformation is set to take multiple years, as outlined here. However, the results are already coming in. The company said that underlying sales performance in the food division has begun to show signs of growth in Dairy Farm’s 2019 first-half results. If Dairy Farm manages to completely turn around its business, there could be huge upside to its shares.
At Dairy Farm’s share price of US$7.0, it has a price-to-earnings (PE) ratio of 146 (based on reported earnings) and a dividend yield of 3%.
Company #2: HRnetGroup Ltd
HRnetGroup Ltd (SGX: CHZ) is the biggest recruitment firm in the Asia-Pacific (excluding Japan) region. In the second quarter of 2019, HRnetGroup’s gross profit decreased by 4.3% year-on-year to S$38.1 million. The company said that the fall in gross profit was largely due to lower gross profit from Singapore, which fell 10%. The slowing economic growth in Singapore has affected HRnetGroup’s business.
When the economy does not do well, companies cut costs, including lowering their staff count and freezing new hires. In turn, HRnetGroup’s business could get hit. In time to come, though, economies do recover, and things start looking rosy again. When that happens, HRnetGroup could see higher usage of its services, leading to better financial performance.
HRnetGroup also has a strong balance sheet to see through the tough times. As of 30 June 2019, it had cash and cash equivalents of S$274.4 million with zero bank borrowings.
Since the beginning of the year, HRnetGroup’s shares have fallen some 28%. At HRnetGroup’s share price of S$0.58, it has a PE ratio of 12 and a dividend yield of 4.8%.
Company #3: Riverstone Holdings Limited
Riverstone Holdings Limited (SGX: AP4) is a manufacturer of nitrile and natural rubber cleanroom gloves as well as premium nitrile gloves used in the healthcare sector.
Year-to-date, Riverstone’s shares have tumbled 17%. In its most recent quarter, Riverstone saw its net profit fall 3.1% year-on-year despite an increase in revenue. Its gross profit margin contracted 2.4 percentage points to 20.1% due to lower average selling prices of healthcare gloves and a change in product mix.
Despite the margin pressures, Riverstone is looking to increase its glove production capacity further so as to keep up with worldwide demand for gloves. The company said that it would increase capacity by up to 1.4 billion pieces of gloves by the end of this year or the first quarter of next year, bringing its total annual production capacity up to 10.4 billion pieces of gloves.
At Riverstone’s share price of S$0.945, it has a PE ratio of 17 and a dividend yield of 2.4%.
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 Dairy Farm International Holdings Ltd, HRnetGroup Ltd, and Riverstone Holdings Limited. Motley Fool Singapore contributor Sudhan P owns shares in HRnetGroup Ltd.