One of the more commonly used strategies by investors is to follow insider transactions. Some might even assume that since insiders are “in the know”, they might be better equipped to predict the share price of a company. Consistent insider purchases may indicate an undervalued share price. On the other hand, there might be others who would turn the argument around and say that if insiders are selling, then bad news is likely to be around the corner – though it must be noted that there is no basis for that as insiders might be selling for their own personal…
One of the more commonly used strategies by investors is to follow insider transactions. Some might even assume that since insiders are “in the know”, they might be better equipped to predict the share price of a company.
Consistent insider purchases may indicate an undervalued share price. On the other hand, there might be others who would turn the argument around and say that if insiders are selling, then bad news is likely to be around the corner – though it must be noted that there is no basis for that as insiders might be selling for their own personal reasons.
In addition, while substantial shareholders (shareholders who control 5% or more of a company) are often not involved with managing the company and are thus not strictly classified as ‘insiders’, their moves with a company’s shares might be worth noting too for the simple reason that substantial shareholders have a big stake in a company and would likely have done the requisite homework.
With these in mind, let’s take a look at two companies that have had insider and substantial-shareholder activity over the past two weeks.
1. Sino Grandness Food Industry Group Ltd (SGX: T4B)
Founded in 1997 and headquartered in Shenzhen, Sino Grandness produces and sells canned vegetables and fruits in Europe, North America, and Asia. In 2010, the company successfully launched its own branded-bottled juices under the brand Garden Fresh. According to Sino Grandness’ website, the company is now one of the leading exporters of canned asparagus, long beans, and mushrooms in China.
Between 21 October 2014 and 29 October 2014, Mr. Huang Yupeng, the company’s Chairman and Chief Executive Officer, had been busy buying shares.
In total, his purchases over that period had raised his stake in Sino Grandness from 40.13% to 40.42%. Sino Grandness’ share price had experienced a drastic fall recently after the company’s business was criticized by an anonymous report whose author is short the firm’s shares (when you’re short, you’re betting on the share’s price to fall). As such, Mr. Huang’s purchases might be seen as some opportunistic bargain hunting.
Sino Grandness last traded at S$0.44 on Tuesday. The company has a really low price/earnings (PE) ratio of 2.9 and has no historical dividend yield since it did not declare any dividend in its last financial year. For some perspective, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks Singapore’s market barometer the Straits Times Index (SGX: ^STI), carries a trailing PE ratio of 13.7 at the moment.
2. Rex International Holding Ltd (SGX: 5WH)
Rex, an independent oil & gas exploration and production (E&P) outfit, currently operates in Norway, UAE, Oman, and the U.S., where it has oil & gas assets. The company is known for its expertise in exploration technologies – such as Rex Gravity, Rex Seepage, and Rex Virtual Drilling – which it provides to other oil & gas companies.
On 21 October 2014, FIL Limited, a substantial shareholder of the firm, bought 565,000 shares for a total sum of S$293,800. The transaction helped to increase FIL Limited’s interest in Rex from 5.99% to 6.04%.
Rex’s shares last traded at S$0.475 on Tuesday. With no profits in sight at the moment, the company does not have a P/E ratio and sports no dividends as well.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.