Every now and then, I like to keep track of companies which have been buying back their own shares. That?s because share buybacks may be a sign that a company?s stock is undervalued.
Peter Lynch, the legendary manager of the U.S.-based Fidelity Magellan Fund, also included buybacks as one of the criterion in his investing checklist. To Lynch, it?s a good sign if a company or its insiders are buying shares.
Of course, management may be tasking the company to buy back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution)….
Every now and then, I like to keep track of companies which have been buying back their own shares. That’s because share buybacks may be a sign that a company’s stock is undervalued.
Peter Lynch, the legendary manager of the U.S.-based Fidelity Magellan Fund, also included buybacks as one of the criterion in his investing checklist. To Lynch, it’s a good sign if a company or its insiders are buying shares.
Of course, management may be tasking the company to buy back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution). And even if management feels that the stock’s undervalued, they may well be wrong in their assessment too. But, companies that have been buying back their own shares are still worth digging further into.
With these in mind, let’s take a look at two companies that have been engaged in buybacks these past few weeks:
1. Silverlake Axis Ltd (SGX: 5CP)
Founded in 1989, Silverlake Axis has been providing integrated software solutions for years to major financial institutions and organizations such as banks and insurance companies.
Silverlake Axis is today a core system platform partner for three of the five-largest financial institutions in the ASEAN region and serves over 40% of the 20 largest banks in South-East Asia.
Silverlake Axis’s stock has declined by 40% over the past three months after a report which likened the company to high-profile fraud-cases involving Asian software companies was released on 20 August 2015.
The company started buying back its shares on multiple occasions after the release of the negative report, with the first buyback occurring on 26 August 2015. All told, Silverlake Axis has bought back 23 million shares of itself since then. For some perspective, Silverlake Axis had a weighted average number of shares of 2.695 billion as of 30 June 2015.
Silverlake Axis closed at S$0.615 last Friday. At that price, its valued at 16 times its trailing earnings and has a fat dividend yield of 6.8% thanks to its dividend of 4.2 Singapore cents per share in the fiscal year ended 30 June 2015.
2. Straco Corporation Ltd (SGX: S85)
Straco is a play on tourism as the company’s focus is on the operation and development of tourist attractions. The firm made headlines last year when it purchased the Singapore Flyer, a tourism landmark here.
In addition to the Flyer, which is one of the largest observation wheels in the world, Straco also counts two aquariums in China as its main assets – the Underwater World, Xiamen and Shanghai Ocean Aquarium.
Straco has been buying back shares on a number of occasions in July, August, and September. October is no different with the firm having bought on four different days so far; you can see this in the table below.
Source: Straco’s filings
Straco’s shares last changed hands at S$0.87 last Friday. It is valued at 17 times its trailing earnings at that price.
A Fool’s take
Companies that are engaged in share buybacks are just a good starting point for investors looking for opportunities. It’s the investors’ job to dig further and determine for themselves whether a company’s shares are cheap or not.
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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.