These Companies Are Buying Back Their Shares

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. Japan Foods Holding Ltd  (SGX: 5OI)

As a purveyor of Japanese cuisine, Japan Foods serves up affordable Japanese fare such as ramen (through its Ajisen and Menya Musashi outlets). All told, Japan Foods currently has a portfolio of 12 food & beverage brands.

Between 22 February and 7 March, Japan Foods had purchased a total of 470,000 of its own shares, spending a total sum of nearly S$182,000.

The company’s shares closed at a price of S$0.385 yesterday. At that price, Japan Foods is valued at 14 times trailing earnings. In the company’s latest results release, for the fiscal third-quarter ended 31 December 2015, it didn’t fare well. Quarterly revenue had declined by 7.5% year-on-year while profit was down by 38%. Management cited a tightening of customers’ belts as a reason for the company’s weak showing.

2. Keppel Corporation Limited  (SGX: BN4)

Keppel Corp is one of the largest listed conglomerates in Singapore. It has three major business segments, namely, Offshore & Marine, Property, and Infrastructure. You can read more about the company in here and here.

Over the past three weeks, Keppel Corp had bought back shares of itself on two occasions (26 February and 1 March). A total of S$3.07 million was spent by the company on 590,000 shares. At Keppel Corp’s closing price of S$5.90 per share yesterday, the firm has a trailing price-to-earnings ratio of just 7.

Keppel Corp’s latest earnings was for the year ended 2015. It wasn’t a good report as a collapse in oil prices had partly led to its revenue and profit falling by 23% and 19%, respectively. Earlier this week, newswires also reported that Keppel Corp had reached an agreement to delay the delivery of five rigs to its customer, Transocean, to 2020 instead of 2018. This is the second delay for the rig orders which are worth around US$1.1 billion. Keppel Corp had commented that it will be compensated by Transocean “accordingly.”

Foolish Conclusion

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.

To keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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.