Can This Billionaire Stock Become A Growth Superstar?
Growth stocks can come from a wide variety of industries, be it old or new. The important thing is to be able to identify the best company within that industry to place your chips on.
Recently, we suggested two key criteria which can help investors identify a good growth company: revenue growth and return on equity. Today, I would like to put some numbers behind the criteria to help us unearth a good growth company:
1) 5-year revenue growth of greater than 10%
2) Return on equity (ROE) greater than 10%
3) A market capitalization of over a billion dollars
With these parameters in mind, let’s look at a billionaire company which fit the bill.
Bumitama Agri Ltd (SGX: P8Z) was founded in 1996 in South Jakarta, Indonesia. The company’s business interest lies in the production and trading of crude palm oil (CPO), palm kernels and related products from its refineries in Indonesia. Bumitama Agri owns 233,000 hectares of land in Indonesia which is used for cultivating oil palm trees. Currently, the company has a market capitalization of S$1.1 billion.
Between 2013 and 2017, Bumitama Agri’s revenue has grown at around 19% per year, increasing from IDR$4.06 billion in 2013 to IDR$8.13 billion. The strong growth in its top-line easily meets our criteria for at least 10% growth.
Source: Morningstar; in IDR Billions
Aside from the revenue growth rate, a company’s ROE is important as it sheds light on how efficiently the company is using its equity. This measure allows us to analyse the management’s ability to retain and reinvest profits for long-term growth.
In the case of Bumitama Agri, the table below shows that the ROE has ranged from 13.23% to 19.04% between 2013 and 2017. With that, the company has comfortably exceeded our 10% criteria for the ROE. Apart from exceeding our set threshold, it also shows that Bumitama Agri’s management is able to re-invest profits year-on-year, allowing the company to grow its business.
In summary, Bumitama Agri’s revenue growth and consistent ROE is an indication that the company’s management team has been able to reinvest its profits to further its business growth. The meeting of these two criteria’s set by us should thus be the starting point for investors to dig deeper.