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The Singapore stock market is famous for being the home of REITs and dividend-paying companies. However, investors who are looking for growth stocks tend to prefer searching in markets outside of Singapore.
While it is true that the Singapore market may be small in comparison to markets like Hong Kong, China, and the United States, there are still investment-worthy growth stocks here that I believe have the potential for market-beating returns.
One such stock that I believe could potentially double your money is HRnet Group Ltd (SGX: CHZ). The recruitment firm has a remarkable track record of growth. It started from a mere four-man operation some 25 years ago and has since grown to become the largest recruitment firm in Asia, excluding Japan. More importantly, the company could extend its impressive streak well into the future.
Here’s why I believe HRnet could potentially double your money in the next few years.
Growing addressable market
As mentioned earlier, HRnet Group has a tremendous record of growth:
Source: 2018 Analysts Presentation
The company looks set to extend its streak of growth for many years to come. In 2018, revenue spiked by 9.3% to a new record high with normalised net profit after tax up 24.0%. The company enjoyed business growth across both its contract employee and permanent placements businesses.
HRnet Group earns its keep as a percentage of annual income of contractor employees. As such, the addressable market size will increase as long as wages and the total working population grows.
Expanding in other markets
As of 2018, Singapore contributed around 54% of the group’s total revenue. However, revenue from other countries in which it operates is growing fast. In 2018, revenue from Hong Kong and China increased by S$4.4 million and S$9.2 million, respectively, faster than the S$4.4 million revenue growth recorded in its core market in Singapore.
North Asia is a huge market that HRnet can tap into, considering its track record and expertise in the recruitment space. It has also built up relations with multinational conglomerates that could potentially use its services in the new markets in which HRnet is growing.
While growth is one aspect of my analysis, the current valuation of the company also plays a major part of the investment thesis.
Shares of HRnet group currently trade at S$0.80 per share, which translates to a forward price-to-earnings ratio of 14.2 (based on analysts earnings estimates). In comparison, the recruitment firms in Asia have an average forward price-to-earnings multiple of 23.7.
Considering HRnet looks set to extend its streak of growth, it looks like a real bargain at its current valuation.
Based on its growing market, HRnet Group can continue its double-digit growth over the next five to six years. This would mean its share price could easily double within this time frame, even without price-to-earnings expansion.
The Foolish bottom line
Growth stocks are a dime in a dozen in Singapore. However, HRnet Group could be worth looking into. Besides its steady track record of growth and growing addressable market, HRnet is also trading at a relatively low price. All things considered, I believe investors who are willing to invest in this fast-growing recruitment company could well be rewarded a few years down the road.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of HRnet Group Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in HRnet Group Ltd.