3 Little Known Stocks With Double-Digit Return On Equity

By ShareInvestor – 04 November 2019

Heads-up -> If you haven’t heard of the “Growth Portfolio Series” before, do check out our 4 portfolios to help you screen stocks based on your investment personality over at http://portfolio.shareinvestor.com.

Article highlights:

  • A steadily increasing dividend pay-out from Frencken Group
  • JB Foods experienced a 1,000% jump in profits from FY2015 to FY2018
  • Tapestry – owns Coach and Kate Spade, offers a juicy 5% dividend yield
  • Preset Screener can help to spot these potential bargain stocks

The reason why Groupon became so popular is because everyone loves to grab a discounted deal (even when the original price is marked up beforehand – oops).

When it comes to investing, value investing is a popular investment strategy for people to "shop" for stocks which are temporarily undervalued in the market.

Given that we have covered 3 Hong Kong stocks in our previous article, we would seek out 3 potentially undervalued stocks from the Singapore and U.S. markets this time round.

The sample criteria we used are as per below:

Sourced from ShareInvestor WebPro

*Quick Note* the above criteria is predetermined to screen for companies which are growing their earnings, do not have excessive debt and trades at reasonable valuations. You can alter the fields to come out with your list of stocks.

And we have the below 3 overlooked stocks compounding their net earnings at more than 10% for the past 3 years:

  1. Frencken Group Limited (E28.SI)
  2. JB Foods Limited (BEW.SI)
  3. Tapestry (TPR.NY)

In this article, we will drill down into their company profiles and financial performance.

1. Frencken Group Limited (E28.SI)

Sourced from ShareInvestor WebPro

Frencken Group Limited is a global high-tech capital and consumer equipment service provider. The Group, formerly known as ElectroTech Investments Limited, is a public corporation listed on the Mainboard of the Singapore Exchange since May 2005.

Leveraging on the capabilities of their strategically located facilities in The Netherlands, Singapore, Malaysia and China, the Group offers a comprehensive range of product solutions that span the entire value chain - from initial product design, development and prototyping, to engineering, final test, and series manufacturing.

Frencken Group serves customers in Europe, Asia and the USA through a global network of operating subsidiaries.

Below, we zoom into the company’s financial snapshot and check out its financial numbers in more details.

Financial Snapshot sourced from ShareInvestor’s WebPro

From the above, we can see that Frencken’s revenue have been increasing for the past 3 years but profits are going the other direction. In addition, investors have to take note of Frencken’s low margins and high debt to cash flow.

That said, it has a well-positioned current ratio and has been paying out increased dividends over the past 5 years. Lastly, it has a Return on Equity (ROE) above 10% for the 2 consecutive years.

Sourced from ShareInvestor’s WebPro

We further utilized our Dividend Analysis tool to grab a better picture of Frencken’s dividend trends. Based on the chart above, the company is able to raise its dividends over the past few years, in line with the increased earnings per share.

This is also accomplished via a low dividend pay-out ratio; the trailing 12M Jun 2019 pay-out ratio is currently only at 0.25x.

Sourced from ShareInvestor’s WebPro

With reference to their dividend distribution table since FY2012, its dividends have been increasing year on year too. Based on its share price of S$0.69 per share and FY2018 dividends of 2.14 cents, the company is currently offering a dividend yield of 3.1%.

Sourced from ShareInvestor’s WebPro

On the valuations front, Frencken’s P/E ratio has been pretty volatile for the past 10 years or even non-existent due to losses incurred in FY2012.

That said, Frencken’s P/E ratio seems to be one of the lowest of all time even after a 300% surge in share price from January 2016! What’s more, the current P/E Ratio of 6.99x is still one of the lowest of all time.

This also means that the earnings have increased in tandem with the share price even though it has side-lined in the past 2 years.

Investors who wish to participate in Frencken’s steady uptick in dividends coupled with a rock solid financial position should monitor to see if the company can continue to grow its earnings as well.

2. JB Foods Limited (BEW.SI)

Sourced from ShareInvestor’s WebPro

According to their website, JB Foods Limited (“JB Foods”) started as a processor of wet cocoa beans to dry cocoa beans in the 1980s. Today, it has grown to be one of the major cocoa ingredient producers in the region, with a total processing capacity of 180,000 metric tonnes of cocoa beans equivalent per year.

The Group’s principal activities comprise the production and sale of cocoa ingredient products, namely cocoa butter, cocoa powder and cocoa mass, under brand name JB Cocoa.

The Group’s products are sold primarily under the “JB COCOA” brand name to a worldwide customer base ranging from international trade houses to end users such as food and beverage and confectionery manufacturers.

JB Foods’ share price has skyrocketed 327% from S$0.20 in FY2016 to S$0.655 as of 1st Nov 2019. The jump in share price can be attributed to their explosive growth in earnings especially after the 2 heavy loss-making years as seen below:

Sourced from ShareInvestor’s WebPro

From the above, you can see that the revenue has been steadily increasing over the past 8 years.

The net profit after tax suffered a heavy S$20.5 million in FY2013 but turned around in FY2015 and picked up a blistering pace to 10x its profits from FY2015 to FY2018. This can be attributed to a slowdown in the ‘cost of revenue’ after their groundwork was established.

Sourced from ShareInvestor’s WebPro

Their CEO Tey How Keong and Executive Director Mdm Goh Lee Beng have been seen upping their stakes in the company 4 times just in 2019 alone. The husband and wife duo currently own a deemed stake of 138.03 million shares in the company.

The last transaction was a purchase of 546,000 shares by CEO Tey How Keong from the open market at an average price of S$0.63.

Sourced from ShareInvestor’s WebPro

Last but not least, its current P/E ratio of 5.25x is also at a multi-year low. It seems that there is room for more upside if the company can sustain its accelerated earnings growth.

3. Tapestry (TPR.NY)

Sourced from Tapestry’s investor presentation

While many people may know of the lifestyle brands Coach and Kate Spade, they would not know that the NYSE-listed company behind them is Tapestry Inc.

It is a New York-based house of modern luxury lifestyle brands founded upon a consumer-led view of luxury that stands for inclusivity and approachability. The above picture shows their different positioning and when they are established.

Sourced from ShareInvestor’s WebPro

However, unlike the popularity of their renowned brands, Tapestry’s share price is not doing so well. In fact, it has fallen 36% in the past 2 years from US$40.26 to US$25.86 as of 1st Nov 2019.

Sourced from ShareInvestor’s WebPro

Its current financial numbers look to be in good shape with revenue climbing steadily over past 5 years. Other than the dip in profit margins in FY2018, the earnings margins seem to be ranging between 8.3% to 10.68% in FY Jun 2019.

A large part of the share price drop can primarily be attributed to its fall in P/E ratio from 21x to only 11.7x based on its EPS of US$2.21 and closing price of US$25.86.

Sourced from ShareInvestor’s WebPro

Comparing against its peers - Ralph Lauren and Capri Holdings (which owns Michael Kors brand), Tapestry is performing the best among the 3 ratios – Net margins, ROE and net debt to equity as shown in the table above.

Sourced from ShareInvestor’s WebPro

It also sports the lowest P/E ratio and highest dividend yield among the 3 of them.

Sourced from ShareInvestor’s WebPro

Last but not least, Tapestry is covered by 27 analysts and has an Overweight consensus recommendation. Based on its average target price of US$27.25, it translates to around 5.38% potential upside from the current share price.

In a nutshell, Tapestry is trading at below its peers and analysts are optimistic on the company as a whole.

Conclusion

All in all, bargain stocks can be found anywhere be it in Singapore or United States.

On that note, investors may also miss out on interesting companies like Tapestry even though it is the parent company behind popular brands – Coach and Kate Spade.

A market screener, especially one with preset criteria, can help investors to zoom quickly into these undervalued stocks with good ROE and still growing at a healthy clip.

If you wish to find out more about this popular feature, you can visit http://portfolio.shareinvestor.com for more details.

Check out ShareInvestor’s webpro to access timely upates to empower your investment research - http://www.shareinvestor.com/sg

 

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