Every now and then, I like to keep track of companies that have been buying back their own shares. That?s because share buybacks may be a sign that a company?s stock could be 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…
Every now and then, I like to keep track of companies that have been buying back their own shares. That’s because share buybacks may be a sign that a company’s stock could be 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 is 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. Lum Chang Holdings Limited (SGX: L19)
Founded in the 1940s, Lum Chang has evolved from its origin in construction to become a property developer and investor as well, today. It has developed an impressive track record for its construction arm (Lum Chang Building Contractors) with it “ranked consistently” by Singapore’s Building and Construction Authority as a Grade A1 contractor and Class 1 General Builder. The company’s construction portfolio is valued at over S$8 billion today.
Meanwhile, Lum Chang’s property development business has developed residential and commercial projects as well as hotels and resorts in Singapore and elsewhere. Some of these projects include the Good Class Bungalows in Swettenham Road and gated residences in Kuala Lumpur, Malaysia.
Lastly, Lum Chang’s investment properties include two pieces of real estate each in Singapore and London, United Kingdom.
Lum Chang’s latest share buyback mandate started on 30 October 2015. Since 13 November 2015, the company has bought back its own shares on seven occasions. A total of 1.55 million shares have been bought for a total sum of S$572,191 in that buyback spree.
Lum Chang is currently trading at S$0.365 and is valued at just 3.8 times its trailing earnings. The company also has an attractive 5.5% dividend yield, thanks to its 2014 dividend of S$0.02 per share.
2. Valuetronics Holdings Limited (SGX: BN2)
An integrated electronic manufacturing services provider, Valuetronics has two business segments, namely, Consumer Electronics and Industrial and Commercial Electronics.
Headquartered in Hong Kong, the company serves multinational and mid-sized companies in the telecommunications, industrial, commercial, and consumer sectors worldwide.
Valuetronics had bought back its own shares twice in recent weeks (on 13 November and 1 December). On those two occasions, the company had bought a total of 300,000 shares at an average price of S$0.416 each.
These trades were made after the release of Valuetronics’ fiscal second-quarter results on 13 November. For the quarter ended 30 September 2015, the electronics manufacturer saw its net profit fall by 11.3% year-on-year.
At Valuetronics’ current share price of S$0.415, it also carries a low price-to-earnings (PE) ratio of just 5.9.
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 investor’s job to dig further and determine for his or herself whether the company’s shares are really 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.