One of the more commonly used strategies by investors is to follow insider transactions. That?s something even the legendary super investor Peter Lynch did.
In his book One Up on Wall Street, Lynch shared investing checklists that he had used and one of the criterion was this: ?Whether insiders are buying and whether the company itself is buying back its own shares. Both are positive signs.?
Consistent insider purchases may indicate that a company?s management thinks that the stock is undervalued. They could be wrong of course, but companies that have seen insiders buy shares consistently are still worth some further research.
One of the more commonly used strategies by investors is to follow insider transactions. That’s something even the legendary super investor Peter Lynch did.
In his book One Up on Wall Street, Lynch shared investing checklists that he had used and one of the criterion was this: “Whether insiders are buying and whether the company itself is buying back its own shares. Both are positive signs.”
Consistent insider purchases may indicate that a company’s management thinks that the stock is undervalued. They could be wrong of course, but companies that have seen insiders buy shares consistently are still worth some further research.
Meanwhile, it’s worth noting that insider selling need not mean that bad news about the company is around the corner – there are many reasons why insiders may want to sell.
With these in mind, let’s take a look at two companies that have recently seen insiders buying shares, or in other words, putting their money where their mouth is.
1. Parkson Retail Asia Pte Ltd (SGX: O9E)
Parkson Retail Asia, as its name suggests, is involved in the retail industry. It runs mainly bricks-and-mortar departmental stores in a number of Asian markets including Malaysia, Vietnam, Indonesia, and Myanmar.
The company has a network of 71 stores as of 31 December 2015, which are mostly housed under its namesake Parkson brand. These stores have a collective gross floor area covering 840,000 square metres.
On 18 February 2016, Wee Kheng Jin, Parkson Retail Asia’s lead independent director, had bought 90,000 shares of the company in the open market at an average price of $0.171 each. With that, his interest in the firm had increased from 0.0088% to 0.0221%.
Parkson Retail Asia last changed hands at S$0.16 yesterday. At that price, the company’s valued at just 0.6 times its latest book value. In the company’s latest earnings for the six months ended 31 December 2015, its revenue had fallen by 14% year-on-year to S$196 million. But as a result of a S$46 million one-off gain from the sale of part of its interest in a subsidiary, the company had seen a 206% spike to S$52.4 million in its profit attributable to shareholders.
2. Health Management International Ltd (SGX: 588)
Established in 1991, Health Management International is a private healthcare provider with businesses in Singapore, Malaysia, and Indonesia. The company’s key assets are two tertiary hospitals located in Malaysia, namely the Mahkota Medical Centre in Malacca and the Regency Specialist Hospital in Johor. These hospitals have a total bed capacity of over 500.
On 23 February 2016, Dr Cheah Way Mun, a non-executive director of Health Management International, had bought 84,000 shares of the company for S$0.30 apiece. With the investment, Cheah’s stake in Health Management International had expanded slightly from 2.83% to 2.85%.
Shares of Health Management International closed yesterday at S$0.31, giving the company a trailing price-to-earnings (PE) ratio of 24.
The company’s latest earnings, for the six months ended 31 December 2015, was released three weeks ago. For the period, Health Management International had experienced a 14% jump in revenue to RM191 million on the back of a higher patient load and bill sizes in its two hospitals. Its higher revenue didn’t translate into bottom-line growth as the company’s profit attributable to shareholders sank by 44% to RM6.8 million.
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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.