How To Take Advantage Of Yue Yuen Industrial (Holdings) Limited (HKG:551) In A Bear Market

When stocks are plummeting in price, it’s hard to start buying into all the uncertainty. But a disciplined long term investor knows there’s no better time to buy than right now. And I’m not talking about buying into speculative, high-risk stocks. I’m talking about the well-proven, robust track record Yue Yuen Industrial (Holdings) Limited. Why? Size. Financial health. Proven performance.

See our latest analysis for Yue Yuen Industrial (Holdings)

Yue Yuen Industrial (Holdings) Limited, an investment holding company, engages in the manufacturing, marketing, and retailing of athletic footwear, athletic style leisure footwear, and casual and outdoor footwear in the People’s Republic of China, the United States, Europe, and internationally. Yue Yuen Industrial (Holdings) was established in 1969 and with the market cap of US$38.66b, it falls under the mid-cap stocks category. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.

SEHK:551 Historical Debt July 30th 18
SEHK:551 Historical Debt July 30th 18

With US$1.98b debt on its books, Yue Yuen Industrial (Holdings) has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. With an interest coverage ratio of 11.23x, Yue Yuen Industrial (Holdings) produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its operating cash flows amply covers its total debt by 29.95%, above the safe minimum of 20%. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.

SEHK:551 Income Statement Export July 30th 18
SEHK:551 Income Statement Export July 30th 18

551’s annual earnings growth rate has been positive over the last five years, with an average rate of 1.47%, overtaking the industry growth rate of -4.65%. It has also returned an ROE of 11.18% recently, above the industry return of 10.15%. Yue Yuen Industrial (Holdings)’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.

Next Steps:

Yue Yuen Industrial (Holdings) makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Yue Yuen Industrial (Holdings)? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
  1. Future Outlook: What are well-informed industry analysts predicting for 551’s future growth? Take a look at our free research report of analyst consensus for 551’s outlook.
  2. Valuation: What is 551 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 551 is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.