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. PACC Offshore Services Holdings Ltd (SGX: U6C)
The company, also known as POSH, is the largest Asia-based operator of offshore support vessels. As of 30 September 2015, the company has interests in over a hundred vessels of various types that are meant to provide support services across the offshore oil and gas industry value chain.
According to POSH’s latest earnings release, many oil-related companies are feeling the heat due to lower oil prices and are thus “reducing or deferring their capital expenditure, reviewing existing charter arrangements and renegotiating charter rates.” POSH also commented that the factors above “will have a negative impact” on its financial performance until oil prices can start moving up.
But, the company isn’t sitting still. POSH is concentrating its efforts on establishing market share in key markets such as the Middle East and Africa and on improving its fleet utilization by exploring more charter opportunities in frontier markets.
POSH got listed on April 2014 at a price of S$1.15. But since then, the company’s share price has been on a steady decline, falling by more than 70% to S$0.335 as of yesterday.
The drastic decline may be the reason behind POSH’s frequent share buybacks since the start of August 2015; over this nearly four month period, POSH has bought back its shares on 41 different occasions. POSH’s latest buyback happened on 24 November 2015, when 100,000 shares were purchased at S$0.335 each.
POSH’s share buyback mandate started on 27 April 2015 and since then, the firm has acquired a total of 6.42 million shares of itself. At POSH’s closing price yesterday of S$0.335, it is valued at 49 times its trailing earnings.
2. Wing Tai Holdings Limited (SGX: W05)
From its roots as a small garment manufacturer in Hong Kong in the 1950s, Wing Tai has since become a multinational property developer with businesses in Singapore, China, Malaysia, and Hong Kong.
Beyond property development, Wing Tai also has its fingers in hospitality and retail businesses. Under the former, Wing Tai manages serviced residences in Asia. As for the latter, the company has more than 250 stores with a portfolio of 17 brands in Singapore and 12 in Malaysia as of 30 June 2015; retail bands under Wing Tai’s purview include Dorothy Perkins and Uniqlo.
In the month of November, Wing Tai had bought back a total of 684,000 of its own shares on two occasions – once on 13 November and once on 16 November. The prices paid were in the neighbourhood of S$1.68 per share. Wing Tai’s latest share buyback mandate started only on 28 October 2015 and the two aforementioned purchases were the first under the mandate.
At its closing price of S$1.71 yesterday, Wing Tai is valued at just 0.4 times its latest book value.
A Fool’s take
Companies that are engaged in share buybacks are just a good starting point for investors looking for opportunities. It’s up to us to dig further and determine for ourselves whether a company’s shares are actually 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.