It’s an interesting exercise to assess how well an investment could have done had you stayed invested.
The power of compounding can be demonstrated much better using such examples.
Previously, we provided an example of how much your money can grow if you had invested in one stock over the last decade.
This time, we will be using a shorter time frame of three years.
For investors in Top Glove Corporation Berhad (SGX: BVA), the capital gains from owning the stock are not the only reward.
The largest glove company in the world has also dished out increasingly attractive dividends over the years.
And in case you think these gains all happened in the past, here’s why we believe the company’s best days may still lie ahead.
Top Glove was trading at S$0.65 (split-adjusted price) back in June 2018.
In just three years, the company’s share price has more than doubled to close at S$1.51.
If you had invested S$10,000 in the stock back then, it would have grown to around S$23,230.
The company has also announced two bonus issues since June 2018 — there was a one-for-one bonus issue approved in October 2018, while the other, a two-for-one bonus issue, was approved last year.
Because of these two bonus issues, one share of Top Glove held in June 2018 would have grown to six shares.
At a pre-bonus share price of S$3.90, S$10,000 would have bought you around 2,500 shares of Top Glove.
The 2,500 shares will grow to 15,000 shares after the two rounds of bonus issues.
The total dividends paid up till the first half of the fiscal year 2021 (1H2021) amounted to RM 58.86 sen, or around S$0.19.
With 15,000 shares, the total dividend received amounts to S$2,850.
Adding this to the S$23,230, your investment would have grown to S$26,080, for a 161% gain.
Earnings are still increasing
It’s useful to learn how much your investment would have grown over the past three years.
However, a common question that investors might have is: is Top Glove still going to do well moving forward?
After all, you can’t enjoy past capital gains and dividends if you buy the shares right now.
Top Glove reported a sparkling set of earnings for its recent fiscal 2021 third quarter (3Q2021).
Revenue jumped 146% year on year to RM 4.2 billion while net profit increased nearly six-fold year on year from RM 347.8 million to RM 2 billion.
Free cash flow for the first nine months of fiscal 2021 soared more than 10-fold year on year from RM 634 million to RM 7.2 billion.
The company’s balance sheet remained rock-solid with RM 4.7 billion in cash and short-term investments, while total debt stood at around RM 482.8 million.
Continued demand for gloves
In the short term, demand for gloves and average selling prices are expected to taper as vaccination rates increase worldwide.
Over the longer term, demand is expected to rise to 15% per annum from the previous 10% per annum.
With heightened hygiene awareness, many businesses will require gloves to sanitise their surroundings.
Shopping malls, cruise ships, aeroplanes, cinemas and corporate offices are just some of the places that will need more gloves to ensure cleanliness and instil confidence that their facilities are virus-free.
Vaccines are being disseminated around the world, with gloves required for the administration and handling of these life-savers.
In short, nitrile gloves should see sustained, long-term demand that will benefit Top Glove and all players within the industry.
Expansion plans on track
The company has also laid out clear plans for the expansion of its manufacturing capacity.
As of 3Q2021, the glove-maker had 37 factories that can produce 100 billion pieces per annum.
For 2024, Top Glove is targeting to have 47 factories manufacturing a total of 205 billion pieces per annum, more than doubling its current capacity.
This increase in capacity bodes well for the company as demand is currently outstripping supply.
By increasing its capacity, Top Glove can capture higher levels of business and translate it into increased revenue, profits and cash flow.
Get Smart: Monitor the risks
The company is not without risks, though.
Investors who are keen on owning a stake in Top Glove have to put up with possible volatility in its share price as the industry is being flooded with new entrants.
Stiffer competition may also depress the average selling price of gloves in the short term.
However, when your investment horizon lengthens to years, the company should push past these issues and continue to do well.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.