One interesting thing to follow with any company is 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 criteria 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…
One interesting thing to follow with any company is 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 criteria 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. Sunningdale Tech Ltd (SGX: BHQ)
Sunningdale Tech is a manufacturer of precision plastic components such as dies, tools, jigs, fixtures, moulds, and plastic products.
The company, which has a tooling capacity of 2,500 moulds per year in its 3 million square feet factory, provides turnkey solutions. It has the ability to provide a wide range of services such as product & mould designs, mould fabrication, injection moulding, finishing, and precision assembly of complete products.
On 7 and 8 March 2016, Koh Boon Hwee, Sunningdale Tech’s non-executive chairman and director, had bought a total of 92,300 shares of the firm for a total sum of around S$85,000. With the purchases, Koh’s total stake in Sunningdale Tech had increased from 8.24% to 8.29%.
Koh had bought the shares roughly a week after Sunningdale Tech had released its results for the year ended 31 December 2015. The company had enjoyed a good year, with its revenue jumping by 42% to S$676 million and its profit spiking by 52% to S$42 million. The firm’s cash flow picture also looked strong, as operating cash flow had more than doubled from S$28 million in 2014 to S$67 million. Sunningdale Tech expects its “business environment in 2016 to remain subdued,” but added that it’s still “cautiously optimistic.”
Sunningdale Tech’ shares closed at S$1.00 yesterday. The firm’s valued at just 4.4 times trailing earnings at that price.
2. GSH Corporation Ltd (SGX: BDX)
GSH, which exited its legacy electronics and IT distribution business in 2014, is now a budding property developer and investor with a focus on Southeast Asia, especially in Singapore and Malaysia. The company’s portfolio includes a 51% stake in GSH Plaza, a commercial building located in the heart of Singapore’s central business district. You can read more about the company in here.
On 1 March 2016, Gilbert Ee Guan Hui, the chief executive of GSH, had bought 695,900 shares of the company for around S$0.20 apiece. The transaction had pushed up his interest in GSH from 7.98% to 8.02%.
In a similar manner to Koh’s investment in Sunningdale Tech, Ee had also bought shares of GSH shortly after the company had released its full-year earnings for 2015 on 29 February 2016. GSH saw its top-line for the year quadruple to S$162 million, but the bottom-line didn’t fare too well; profit from continuing operations had fallen by nearly half to S$27 million. That said, it should be noted that GSH’s 2014 results had included a one-off gain of S$66 million coming from a business combination.
Going forward, GSH sees a “subdued” outlook for its commercial properties business in Singapore. In Malaysia, it’s a similar story as the company expects the property market in the country to remain “soft in the light of the current uncertain economic conditions.”
Shares of GSH were last traded at S$0.215 yesterday, giving the company a price-to-book ratio of 1.2.
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.