Kimly Ltd’s Stock Is Trading At A 52-Week Low Price: Is It A Good Business?
Kimly Ltd (SGX: 1D0) is the largest traditional coffee shop operator in Singapore. At the current price of S$0.33, the company’s stock is trading at just a whisker away from its 52-week low price of S$0.325. This captured my attention and got me interested in finding out more about the company. In particular, I wanted to understand: Does Kimly have a high quality business?
This question is important. If Kimly has a high quality business, its current low stock price could be an investment opportunity. Unfortunately, there’s no easy answer to the question. But, a simple metric can help shed some light on the question, and that is the return on invested capital (ROIC).
A brief introduction to the ROIC
In a previous article of mine, I explained how ROIC can be used to evaluate the quality of a business.
The simple idea behind ROIC is that a business with a higher ROIC requires less capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business. High-quality businesses tend to have high ROICs while the reverse is also true – a low ROIC is often associated with a low-quality business.
The table below shows how Kimly’s ROIC looks like. I had used numbers from its fiscal year ended 30 September 2017 (FY2017).
Source: Kimly’s Annual Report
In FY2017, Kimly generated a ROIC of -220%, which is an unusual number. Putting it into perspective, Kimly is funding its business using payables. In this case, the payables of S$20.6 million has covered all the tangible capital requirement of the business.
In sum, I think Kimly is a good business given its unique business model that allows it to generate returns from “other people’s money”.