The Motley Fool

3 Reasons Why Riverstone Holdings Limited Is in My Portfolio

Riverstone Holdings Limited (SGX: AP4) is one of my top-performing Singapore investments since I bought it in 2014 for a split-adjusted S$0.47 per share. Today, its shares trade at S$0.98 each, which translates to a 108% gain over in just five years. Doing the math, that equates to a decent 15.7% annualised return.

On top of that, Riverstone has paid out a regular dividend each year. But despite its spike in share price, I still believe the glove manufacturer’s stock has room to run. Here’s why I am keeping it in my portfolio for the time being.

Expanding rapidly

Riverstone’s growth story is far from over. Management has laid the foundations for growth by consistently increasing its manufacturing capacity. So far this year, the company completed Phase five of its expansion and increased its capacity to 9.0 billion gloves per year.

The group is on track to increase its annual production capacity another 15% to 10.4 billion by the first quarter of 2020.

Ambitious yet prudent management

Over the years, the managers of Riverstone has shown their ability to grow the company quickly but sensibily. As of 30 June 2019, Riverstone had a net cash balance of RM76.4 million and generated RM5.4 million in free cash flow over the second quarter of 2019 alone.

The company has put its strong financial position to use by making prudent land acquisitions and capital expenditures to take advantage of the growing healthcare glove industry.

Decent valuation

Lastly, despite the run-up in its price since I bought it, Riverstone still trades at a reasonable valuation. At a share price of S$0.97, it sports a price-to-earnings ratio of 16.8 and dividend yield of 2.4%. 

When you factor in the company’s growth in capacity and strong balance sheet, its current valuation seems undemanding.

The Foolish bottom line

Although I appreciate that Riverstone’s recent results have been hampered by narrower margins due to the emergence of competition from China glove manufacturers, I still believe that Riverstone’s stock has the potential for growth. As capacity expands, so too will sales as there is more than enough demand to absorb Riverstone’s growing capacity. In time, I also believe Riverston’s profits will track its growth in revenue more closely when margins stabilise.

All things considered, Riverstone will remain in my portfolio for the time being.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings. Motley Fool Singapore contributor Jeremy Chia owns shares in Riverstone Holdings.