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….
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 seen either insider or substantial shareholder activity over the past two weeks.
1. Starburst Holdings Ltd (SGX: 40D)
Starburst Holdings, a relatively new company in Singapore’s stock market having been listed only in July 2014, is an engineering group specializing in the design, engineering, and maintenance of firearms-training facilities in Southeast Asia and the Middle East.
Starburst Holdings’ client base include government groups such as security agencies, military, and civil organizations.
On 2 September 2015, Edward Lim Chin Wah, the Executive Chairman of Starburst Holdings, had bought 79,000 shares of the company from the open market for a sum of S$22,910. As a result of his transaction, Lim’s stake in the firm has inched up from 40% to 40.03%.
Prior to Lim’s transaction, Yap Tin Foo, the Managing Director of Starburst Holdings, had also bought shares on separate occasions on 25 August and 28 August. Yap had purchased a total of 80,000 shares as well over the two days for a total sum of S$23,550, bringing his stake in Starburst up from 40% to 40.03%.
Shares of Starburst Holdings closed at S$0.29 yesterday. That’s just a hair’s breadth higher than a 52-week low of S$0.28. Starburst Holdings’ current depressed share price may perhaps be due to poor financials it had recently reported.
On 12 August 2015, Starburst Holdings released its results for the six months ended 30 June 2015. For that period, the company’s revenue had fallen by 67.4% year-on-year. Meanwhile, its profit of S$9.05 million a year ago had become a loss of S$1.92 million.
While it’s understandable for investors to not want to see lower revenue and losses, it’s worth keeping in mind the fact that Starburst Holdings’ business is largely project based and its overall revenue would thus be lumpy.
2. Dukang Distillers Holdings Ltd (SGX: GJ8)
Dukang Distillers manufactures and distributes “Baijiu” (a Chinese alcohol generally distilled from grains like sorghum, rice, or wheat) products in the People’s Republic of China, particularly in the Henan Province of the country.
The company has ran into some tough times of late. In its latest financials, for the 12 months ended 30 June 2015, Dukang Distillers had registered a loss of RMB561.4 million primarily due to impairment losses of RMB547.4 million. The impairments had come about because of “significant changes in the economic and political environment in [China] which adversely affected the demand for the Group’s baijiu products.”
On 25 August 2015, FIL Limited, a private investment manager, had bought 60,900 shares of Dukang Distillers in the open market for a mere S$5,499. With the purchase, FIL’s total stake in the company has climbed up slightly from 7.99% to 8.00%.
Dukang Distillers last changed hands at S$0.09 yesterday, just S$0.01 higher than its 52-week low of S$0.08. The company has no PE ratio to speak of due to its recent loss, as I had already mentioned.
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.