6 Quick Steps to Pick Out Growth Stocks with Bursaking.com.my
What’s a Growth Stock?
As I write, there are 922 stocks listed on Bursa Malaysia, spanning across 10 major sectors. The question is, ‘Which of these 922 stocks are the ones that grow in value?’
To find the answer, we need to first rightly define what growth stock is.
This is because, too often, we find that share price is still the focus point when investing in shares. For price-focused investors, growth stocks could be perceived to be stocks that experience growth in share prices.
For instance, many would know that Airasia Bhd’s shares are trading at RM 1.34 on January 28, 2016. However, most remain clueless about how many planes does Airasia Bhd own and how much profits did the company make over the past 5 years.
It’s time to go back to basics.
Here, we adopt a more business-focused approach when defining what a growth stock is.
Growth stocks are shares of growing companies. Instead of share price increment, growth is measured based on the company’s increase in revenues, profits, asset size, production, and market value over the mid-to-long term. The duration is usually between a minimum of 3 years to a maximum of 10 years.
Thus, the business model and the company’s earnings take priority over the ups and downs in share prices. When assessing a company’s Price-to-Earnings Ratio (P/E Ratio), we first put our emphasis onto the company’s ‘E’ ,then only, we look at its ‘P’.
Conventionally, this would take countless of time and effort to reading and self-interpretation of financial reports of over 922 stocks listed on Bursa Malaysia. If you wish to study their performances over a 5-year period, then, the amount of annual reports to be read is between 4,500 - 5,000.
If you are new to investing, the effort seems humongous and overwhelming. How is it possible for anyone to download and read thousands of reports?
The Good News
Fret not!
Today, we are able to use Bursaking.com.my as our ‘Cheat Sheet’ to select growth stocks. This is because Bursaking.com.my has already compiled and organized actual financial data of over 800 stocks listed mainly in Bursa Malaysia within its database.
In addition, it has built an instant stock filter which is designed to filter out growth stocks so that we do not need to waste time on mediocre stocks.
Here, we would illustrate to you how you can filter out growth stocks in just 6 simple steps using Bursaking.com.my.
Step 1:
Revenues Must Grow
An ideal growth stock should project growth in revenues in both good and bad economic situation. That is why we track the company’s sales figures over the past 5 years. This is to ensure that the company has a track record of growing revenues consistently.
For instance, Sunway REIT has achieved steady sales growth, up from RM 327.42 Million in 2011 to RM 453.45 Million in 2015.
Step 2:
Profits Must Also Grow
This is about profit margins. Achieving sales growth is just one half of the equation. The other half tests the ability of a company to retain profit margins and thus, growing profits.
This filter would eliminate companies that achieved sales growth but reported continuous decline in shareholders’ earnings. The companies eliminated are those which experienced superior growth in expenses than their sales growth.
The ideal growth stock should project a pattern of shareholders’ earnings as below:
Hence, the next step is to click onto ‘Profits’ and select ‘Growth’.
Step 3:
Cash to Be Deployed for Future Growth
The cash flow statement is the best place to find growth stocks. This is because it records whether a company has the ‘habit’ of investing money to expand further.
First, we need to establish whether a company is able to generate positive operating cash flows. For instance,
In the case of Hartalega, the company had spent RM 947.3 Million in capital expenditures and working capital over the past 5 years. Glove production, as a result, has increased substantially from 4.4 Billion gloves in 2010 to 11.5 Billion gloves in 2015. This had contributed to growth in both revenues and profits to Hartalega over the past 5 years.
Thus, to identify companies that would invest for future expansion, we click onto ‘Cash Flow’ and select ‘Growth’.
Step 4:
Price Trend Should Match Financial Results
After compilation of over 800 stocks, we discovered that price trend does follow a company’s financial results over the mid-to-long term.
Companies that grow profits consistently would, in most cases, grow its market value over the mid-to-long term. The opposite is true. Companies that experience decline in profits or continue to incur losses would experience continuous decline in market value.
For instance, the pattern of a growth stock should look as below:
Hence, we just need to click onto ‘Price Trend’ and select ‘Uptrend’. In this filter, uptrend refers to stocks that would grow its market value over the mid-to-long term. They do not represent share price movement over the short-term.
Step 5:
Above 10% in Return on Equity (ROE)
Return on Equity (ROE) measures how much profits can the management generate from its shareholders’ equity. It is calculated by the formula below:
If a company has ROE of 10% per annum, it means that the management is able to make RM 10 from every RM 100 invested into the company. Thus, a company would be more attractive as an investment if it continues to grow its ROE figures consistently.
To select companies that consistently make above 10% in ROE, we click onto ‘Return on Shareholders’ Equity’ and select ‘Above 10%’.
Step 6:
Above 20% in Dividend Payout Ratio
Companies which are consistently profitable have 3 possible ways to benefit its shareholders. They include:
Dividend Payout Ratio is calculated by the formula as below:
If a company chooses to pay 80% of its profits to its shareholders as dividends, then, it would only have 20% left to expand its business operations. The exception is, of course, for companies who chooses to borrow money to fund its expansionary activities.
Meanwhile, a company may choose to pay only 20% of its profits as dividends. This means, the company would keep 80% of its profits within its accounts. These retained profits are rightfully shareholders’ money and would be invested to grow its business operations. In this case, the company would be classified as a growth stock.
Once done, you may proceed by clicking on ‘Add Portfolio’ and
‘Poof’
Scroll Down and you are given a list of 40 stocks that fulfil the criterions above.
By clicking onto 6 buttons as shown above, we have narrowed down our search from over 800 stocks to about 40 growth stocks.
We have successfully eliminated 95% of the stocks that failed to comply with our personal investment criteria. This also means that we have shortlisted the top 5% stocks which fulfil the criterions selected above, saving us countless hours of personal research time.
Pheww ….
Isn’t that fantastic?
Next, we can pick and choose which stocks that we prefer to look at. Once we clicked onto the respective companies, we would be given 5-year actual financial data, its extraction of key points from Chairman’s Statement and CEO Statements, information on largest shareholders, operating statistics and a ROI calculator within a single page.
We will leave that for the next article.
Meanwhile, if you have comments and further enquiries, please do not hesitate to drop an email:
We would love to hear them from you.
Cheers
Ian Tai
Creator of Bursaking.com.my
The No.1 Stock Data Fanatic in Malaysia
http://www.bursaking.com.my/index.php/catalogs/view_item/6-Quick-Steps-to-Pick-Out-Growth-Stocks-with-Bursaking.com.my
As I write, there are 922 stocks listed on Bursa Malaysia, spanning across 10 major sectors. The question is, ‘Which of these 922 stocks are the ones that grow in value?’
To find the answer, we need to first rightly define what growth stock is.
This is because, too often, we find that share price is still the focus point when investing in shares. For price-focused investors, growth stocks could be perceived to be stocks that experience growth in share prices.
For instance, many would know that Airasia Bhd’s shares are trading at RM 1.34 on January 28, 2016. However, most remain clueless about how many planes does Airasia Bhd own and how much profits did the company make over the past 5 years.
It’s time to go back to basics.
Here, we adopt a more business-focused approach when defining what a growth stock is.
Growth stocks are shares of growing companies. Instead of share price increment, growth is measured based on the company’s increase in revenues, profits, asset size, production, and market value over the mid-to-long term. The duration is usually between a minimum of 3 years to a maximum of 10 years.
Thus, the business model and the company’s earnings take priority over the ups and downs in share prices. When assessing a company’s Price-to-Earnings Ratio (P/E Ratio), we first put our emphasis onto the company’s ‘E’ ,then only, we look at its ‘P’.
Conventionally, this would take countless of time and effort to reading and self-interpretation of financial reports of over 922 stocks listed on Bursa Malaysia. If you wish to study their performances over a 5-year period, then, the amount of annual reports to be read is between 4,500 - 5,000.
If you are new to investing, the effort seems humongous and overwhelming. How is it possible for anyone to download and read thousands of reports?
The Good News
Fret not!
Today, we are able to use Bursaking.com.my as our ‘Cheat Sheet’ to select growth stocks. This is because Bursaking.com.my has already compiled and organized actual financial data of over 800 stocks listed mainly in Bursa Malaysia within its database.
In addition, it has built an instant stock filter which is designed to filter out growth stocks so that we do not need to waste time on mediocre stocks.
Here, we would illustrate to you how you can filter out growth stocks in just 6 simple steps using Bursaking.com.my.
Step 1:
Revenues Must Grow
An ideal growth stock should project growth in revenues in both good and bad economic situation. That is why we track the company’s sales figures over the past 5 years. This is to ensure that the company has a track record of growing revenues consistently.
For instance, Sunway REIT has achieved steady sales growth, up from RM 327.42 Million in 2011 to RM 453.45 Million in 2015.
| Year | 2011 | 2012 | 2013 | 2014 | 2015 |
| Revenues (RM Million) | 327.42 | 406.43 | 415.95 | 427.79 | 453.45 |
Source: Annual Reports of Sunway REIT
To find companies that achieved sales pattern like above, we click onto ‘Revenue’ and select ‘Growth’.Step 2:
Profits Must Also Grow
This is about profit margins. Achieving sales growth is just one half of the equation. The other half tests the ability of a company to retain profit margins and thus, growing profits.
This filter would eliminate companies that achieved sales growth but reported continuous decline in shareholders’ earnings. The companies eliminated are those which experienced superior growth in expenses than their sales growth.
The ideal growth stock should project a pattern of shareholders’ earnings as below:
| Year | 2011 | 2012 | 2013 | 2014 | 2015 |
| Earnings (RM Million) | 63.43 | 95.61 | 134.13 | 175.35 | 215.73 |
Source: Annual Reports of Aeon Credit Service (M) Bhd
Hence, the next step is to click onto ‘Profits’ and select ‘Growth’.
Step 3:
Cash to Be Deployed for Future Growth
The cash flow statement is the best place to find growth stocks. This is because it records whether a company has the ‘habit’ of investing money to expand further.
First, we need to establish whether a company is able to generate positive operating cash flows. For instance,
| Year | 2011 | 2012 | 2013 | 2014 | 2015 |
| Operating Cash Flows (RM Million) | 184.82 | 200.34 | 315.83 | 245.06 | 202.12 |
Source: Annual Reports of Hartalega Holdings Bhd
Second, these cash flows should be utilized to benefit shareholders in several ways:- Pay Dividends (This would be a Dividend Stock)
- Pay Off Debts (Reduce Finance Cost)
- Expand its Business Operations (This would be a Growth Stock)
In the case of Hartalega, the company had spent RM 947.3 Million in capital expenditures and working capital over the past 5 years. Glove production, as a result, has increased substantially from 4.4 Billion gloves in 2010 to 11.5 Billion gloves in 2015. This had contributed to growth in both revenues and profits to Hartalega over the past 5 years.
Thus, to identify companies that would invest for future expansion, we click onto ‘Cash Flow’ and select ‘Growth’.
Step 4:
Price Trend Should Match Financial Results
After compilation of over 800 stocks, we discovered that price trend does follow a company’s financial results over the mid-to-long term.
Companies that grow profits consistently would, in most cases, grow its market value over the mid-to-long term. The opposite is true. Companies that experience decline in profits or continue to incur losses would experience continuous decline in market value.
For instance, the pattern of a growth stock should look as below:
| Year | 2010 | 2011 | 2012 | 2013 | 2014 |
| Earnings (RM Million) | 118.07 | 168.56 | 230.62 | 280.62 | 339.25 |
| Market Cap (RM Million) | 1,682.05 | 2,008.03 | 2,099.31 | 2,842.54 | 2,991.52 |
Source: Annual Reports of Mah Sing Group Bhd
Hence, we just need to click onto ‘Price Trend’ and select ‘Uptrend’. In this filter, uptrend refers to stocks that would grow its market value over the mid-to-long term. They do not represent share price movement over the short-term.
Step 5:
Above 10% in Return on Equity (ROE)
Return on Equity (ROE) measures how much profits can the management generate from its shareholders’ equity. It is calculated by the formula below:
ROE = Shareholders’ Earnings / Shareholders’ Equity
If a company has ROE of 10% per annum, it means that the management is able to make RM 10 from every RM 100 invested into the company. Thus, a company would be more attractive as an investment if it continues to grow its ROE figures consistently.
To select companies that consistently make above 10% in ROE, we click onto ‘Return on Shareholders’ Equity’ and select ‘Above 10%’.
Step 6:
Above 20% in Dividend Payout Ratio
Companies which are consistently profitable have 3 possible ways to benefit its shareholders. They include:
- Pay Dividends (This would be a Dividend Stock)
- Pay Off Debts (Reduce Finance Cost)
- Expand its Business Operations (This would be a Growth Stock)
Dividend Payout Ratio is calculated by the formula as below:
Dividend Payout Ratio = Annual Dividends / Shareholders’ Earnings
Meanwhile, a company may choose to pay only 20% of its profits as dividends. This means, the company would keep 80% of its profits within its accounts. These retained profits are rightfully shareholders’ money and would be invested to grow its business operations. In this case, the company would be classified as a growth stock.
Once done, you may proceed by clicking on ‘Add Portfolio’ and
‘Poof’
Scroll Down and you are given a list of 40 stocks that fulfil the criterions above.
By clicking onto 6 buttons as shown above, we have narrowed down our search from over 800 stocks to about 40 growth stocks.
We have successfully eliminated 95% of the stocks that failed to comply with our personal investment criteria. This also means that we have shortlisted the top 5% stocks which fulfil the criterions selected above, saving us countless hours of personal research time.
Pheww ….
Isn’t that fantastic?
Next, we can pick and choose which stocks that we prefer to look at. Once we clicked onto the respective companies, we would be given 5-year actual financial data, its extraction of key points from Chairman’s Statement and CEO Statements, information on largest shareholders, operating statistics and a ROI calculator within a single page.
We will leave that for the next article.
Meanwhile, if you have comments and further enquiries, please do not hesitate to drop an email:
Ask Ian @
iantai888@gmail.com
We would love to hear them from you.
Cheers
Ian Tai
Creator of Bursaking.com.my
The No.1 Stock Data Fanatic in Malaysia
http://www.bursaking.com.my/index.php/catalogs/view_item/6-Quick-Steps-to-Pick-Out-Growth-Stocks-with-Bursaking.com.my
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