Wednesday, 30 March 2016

Breaking the Slow-Growth Myth of Consumer Staple Companies

Some investors think that consumer staple companies are slow-growing, lumbering companies whose stocks do not provide much opportunity for high capital gains. They may be wildly mistaken.
To show why that’s so, let’s take a look at two large consumer staple companies that are listed in Singapore and Malaysia. They are Thai Beverage Company Limited (SGX:Y92)and Nestle (Malaysia) Berhad (KLSE:4707.KL).
Thai Beverage produces and distributes alcoholic beverages, non-alcoholic beverages, and snacks mainly in Thailand. Nestle (Malaysia), on the other hand, is a food and beverage conglomerate that sources the bulk of its revenue from Malaysia.
If you had invested in either of them over the past 10 years, you would have at leastquadrupled your money as the following table makes clear.
Thai Beverage, Nestle Malaysia total returns table
Source: S&P Global Market Intelligence
More importantly, the duo’s stock market returns have been backed by solid growth in their underlying businesses as well. You can see this in the table below:
Thai Beverage, Nestle Malaysia revenue and net income table
Source: S&P Global Market Intelligence
A company would see its profit more than double over 10 years if its profit is growing at a CAGR of 8.0%; both Thai Beverage and Nestle (Malaysia) have bottom-lines which had climbed at rates faster than 8.0% per year.
Investors who have the impression that consumer staple companies are a bunch of slow-growing and boring companies may want to rethink that assumption. If a tripling of my investment every 10 years is considered boring, I can seriously live with that.

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